Saving isn’t easy for small business owners. But, regularly setting aside small amounts of money helps you maintain long-term financial health. Opening a business savings account is one easy way for your company to save funds.
What is a business savings account?
A business savings account is a bank account you can use to save earnings for future business use. You can quickly and easily access money from your savings account when you need it.
There are different types of savings accounts to choose from, depending on your bank. Ask about your options before opening an account.
You don’t have to deposit large amounts of money into a savings account. Instead, save as your business grows. Depositing small amounts might not seem like a lot at the time. But, the account will gradually add up as you save.
Every business uses a savings account differently. Some experts suggest you start by saving 10% of your profits. Once you build a good cash cushion, you can cut back the amount you save. Deposit money into a business savings account as a part of your business budget.
Saving is never easy. Many small business owners work essentially hand-to-mouth. However, a change in mindset to include savings as part of a business’s budget is one way to ensure that you’ll be able to control your circumstances.”
—Barbara Weltman, attorney, author, and public speaker
Should I have a business savings account?
Though it’s not mandatory for businesses to open a savings account, it might be a good idea for your company. Take a look at these five benefits of a business savings account to decide:
Benefit 1: Prepare for unexpected events
As a small business owner, you know it’s hard to prepare for unexpected events. But, unanticipated costs are inevitable. A business savings account gives you an extra cushion to deal with out-of-the-blue expenses.
Business savings accounts are liquid assets. That means you can use the funds in a savings account to quickly pay expenses. You can easily move cash from your savings account to the person or business you owe.
Using liquid assets is the simplest way to make payments. Liquid assets make the lowest impact on your expense account.
Benefit 2: Save for tax payments
Throughout the year, you are busy running your business, not thinking about paying taxes. But, what happens if you forget to set aside money to pay taxes?
It’s easy to forget to save for tax payments when you’re focused on business operations. If you only use a checking account, you may not have enough available funds when tax time rolls around.
Saving a reserve designated for tax payments in a business savings account helps you keep
money to pay taxes. A savings account eliminates the need to budget tax payments in the same account used for general business expenses.
Benefit 3: You earn interest
You can earn extra money just by keeping cash in a business savings account. The interest rate for a savings account is usually low. Most often, the interest rate is under 1%. Ask your bank what interest rates are available.
Because a business checking account doesn’t earn interest, consider using a savings account for some funds. Even though you gain a small amount, earned interest can add up.
Benefit 4: Add to retirement funds
Saving a small amount in a business savings account helps you prepare for retirement. You can use the savings account in addition to any retirement plans you carry, such as an IRA.
A business savings account also provides extra security if you sell your business. When you are ready to sell, the market might make it hard for you to find the right buyer. Or, your small business valuation may result in a smaller worth than you anticipated. You can fall back on a savings account if the sale of your business doesn’t go as expected.
Benefit 5: Your funds are protected
Business savings account funds are protected in the bank. Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC). You are insured a limit up to $250,000 by the FDIC.
Why should I have a business savings account?
Whether you have an unexpected expense or plan to make a large purchase, sometimes you need extra cash. You can get the money from borrowing. Or, you can use your own money.
Borrowing works well for many small businesses. But when you borrow from a lender, you incur interest. You also must make fixed monthly payments, regardless of the revenue you make each month.
If you build a savings account, you may not need to borrow as often for large expenses. You can use your money to fund bigger purchases.
Need help keeping track of all your business’s transactions? Patriot’s online accounting software is fast and accurate. Try it for free today!
This article is updated from its original publication date of September 1, 2016.This is not intended as legal advice; for more information, please click here.