As a small business owner, you may be wondering why you should have a business savings account. Since you already possess a business checking account, you may not see much of a purpose to a second account. However, a business savings account has more benefits than merely making managing your business’s money more convenient. There are a number of key advantages you may not be aware of. There are also many dangers to going without a savings account, especially as your business grows. Besides coming off as unprofessional, lacking business accounts also creates a mess of distinguishing business and personal budgets. In this article, we will introduce you to some of the best reasons to open a business savings account.
What Is a Business Savings Account?
For the majority of businesses, starting out with a business checking account is the right move. As businesses grow, however, savings accounts become a more appealing option. Business savings accounts can be beneficial for any business, but they are especially good for businesses whose main priority is to safely store their earnings. Business savings accounts are different from bank to bank but often offer interest on account balances. Make sure to ask for different offers before opening your account.
Simply put, a business savings account is an account that you use to save profits for future business expenditures. You can access your money quickly whenever necessary. There is no need to deposit big sums of money to open or maintain a savings account. The only necessary practice is saving as your business expands. Small amounts can add up dramatically over time.
Different businesses use their savings in different ways. The important thing is figuring out how a savings account would benefit your business.
10 Reasons Why You Should Open a Business Savings Account
A business savings account has the obvious benefit of helping to manage your business’s finances. However, there are even more advantages and conveniences that come with a business savings account.
- For emergencies. Having liquid cash set aside in the event of an emergency or major unforeseen expense is vital for businesses. It is best to plan for an unpredictable future. It is difficult to predict financial difficulties or sudden expenses. If an emergency happens, like a major drop in sales or failed machinery, a savings account protects you from cutting into your business’s budget. When the unexpected happens, you will be relieved to have a savings account to fall back on.
- Protecting your finances. Business savings are covered by the federal government up to $250,000. This insurance guarantees that your money is kept safe. This is actually more important now than it was in the past. More businesses than ever before are using online banking to manage their checking accounts. Online banking has real risks: unlike personal accounts, business accounts are more often less protected. Banks may not refund money in the event of fraud. If your checking account is compromised, a savings one provides you with a backup.
- Improve your credit score. A savings account can boost your credit ratings. If you are in need of financing, your chances of approval increase if you use smart banking practices. Lenders see savings as a key sign that your business has the ability to repay them.
- Pay taxes. Keeping extra profit in a savings account can be really helpful when tax season arrives. When money is stored only in a checking account, it is much easier to forget about upcoming taxes and fees. Savings offer a great way to store funds for annual and quarterly taxes.
- Gain interest. Keeping funds in a savings account will accrue interest. While interest rates are not currently very high, interest can still contribute to your growth. Make sure to ask financial institutions you consider for their interest rates and how often it changes.
- Avoid overdraft fees. Banks tend to offer an overdraft line of credit, and many businesses use it. Overdraft protection offers more flexibility, protects you from bounced checks, and saves the embarrassment of declined transactions. But overdraft credit can have individual fees and a higher interest rate on the balance due. Having a business savings account means you plan for potential overdrafts without getting charged. All it takes is linking your checking and savings accounts.
- Budgeting for expenses. Insurance premiums and deductibles, holiday bonuses, and various miscellaneous expenses happen every few months or a few times each year. A business savings account lets you plan ahead for these costs. You can even divide these costs to see how much money to set aside each month to cover them.
- Save for retirement. Savings helps prepare you to retire as a supplement to an IRA or any other retirement plans.
- A healthier business. Healthy cash flow is a key indicator of a business’s health, growth potential, and attractiveness to lenders.
- There are no downsides! Having a savings account does nothing to hurt your business. Extra money is always beneficial, so there is little reason not to save.
How Much Should You Deposit in Your Business Savings Account
Some experts recommend saving 10 percent of your business’s profits until you have built a satisfactory safety net. After you have saved enough to cover unforeseen circumstances, you can begin to scale back the size of your deposits. By adding savings deposits to your business’s budget, you give yourself a number of serious advantages over businesses that have no savings. This includes making your business more appealing to lenders when your business needs financing.
Without a business savings account and checking account, you run the risk of commingling. This is when your business and personal budgets become intertwined. This can have serious consequences for your business’s health, your own finances, and your chances of being approved for loans.
At Camino Financial, our motto is, “No business left behind.” We make it our mission to help every business reach its goals. We do this by offering free tools, tips, and resources to improve your financial performance and grow your business. Sign up for the weekly Camino Financial Newsletter now and never miss out on resources for achieving your business’s full potential.