Money management is hard, but many small businesses are making it unduly tough on themselves by foregoing an essential tool: the business savings account.
Brian Smith, vice president of Small Business Lending at Capital One, and his team are continually taking the pulse of the small business community, noting the challenges they face trying to thrive as independent professionals. He, along with some successful entrepreneurs, have some words of wisdom for those who don’t think they need a business savings account.
“A challenge we continue to hear about is how small businesses aren’t proactively saving for any unforeseen expenses that may impact their cash flow,” Smith said. “In fact, in a recent survey we found more than half (53 percent) of SBOs [small business owners] don’t have a business savings account – with many opting to keep all their cash in their checking account or a personal savings account.”
That whistling noise? It’s the sound of an accountant’s blood boiling. In addition to enraging your friendly neighborhood financial professional, the lack of a business savings account carries other risks.
Smith said his group is “working to educate business owners on the benefits of a business savings account, including preparing for unexpected expenses or future growth, earning interest, protecting their cash and even saving for taxes. We want business owners to understand that with the right financial partner they can put their money to work for them.”
How? Here are some pointers from small business owners who have a business savings account to fall on.
Save for a Rainy Day
Just like a personal savings account can help folks save for a rainy day, a well-tended business account can be a lifesaver, according to Dr. Joe Simon, owner of Manhattan Physical Therapy.
“In the beginning, it can be difficult to save while setting aside money to take care of regular expenses, but it gets easier as you go along. Then, if there’s an unexpected delay in payment to you, the owner, you have funds available to cover things like staff salaries and bill payments,” Simon advised.
Re-invest in Your Business
Chris Deardorff, owner of Magic Flight Studios, said a business savings account is a key element of investing smartly in one’s business.
“Business owners should consider a percentage (even if it’s small) to put into their savings account that will be invested back in the business – whether it’s a financial cushion for a rainy day or saving to hire the next employee. This practice makes sure the money is there when needed, versus spending it now without any reason,” said Deardorff.
It also helps to have a plan. “Equally as important as knowing what will make the business succeed is knowing how the business can bounce back if a plan fails,” added Deardorff. “That’s a scenario in which a savings account can be helpful – it’s there as a safety net.”
Be Cautiously Aggressive in Pursuing Opportunities
The time will come when all that money sitting in a business savings account can be put to better use than earning interest.
“It’s important to be able to recognize where you have potential growth, and invest your money there,” Mark Lo Bianco, president of Fantastic Fabrics, said. “If you spend your capital chasing every lead, you are going to run out pretty quickly. Be prudent and invest in the opportunities that have the potential to make a difference in your company.”