For small business owners, managing finances effectively is crucial to long-term success. A business savings account is an often overlooked but essential tool in this endeavor. While many entrepreneurs focus on checking accounts for daily transactions, a savings account offers some unique benefits that can help safeguard your business and support its growth.
A savings account is distinct from a checking account in that it’s designed for storing money rather than making frequent transactions. Savings accounts typically offer interest on the balance, allowing your funds to grow over time. Unlike checking accounts for daily operations, bills, and payroll – savings accounts are ideal for setting aside money for future business needs or emergencies.
Keep reading to find out why every small business should consider opening a savings account.
1. Build a Financial Cushion for Emergencies
Unexpected challenges are inevitable in business – whether it’s a sudden drop in sales, unforeseen damage, or an economic downturn. Having a financial cushion in a savings account can provide much-needed stability during these times. According to research by the J.P. Morgan Chase Institute, the median small business has only about 27 days’ worth of cash reserves. By regularly setting aside funds in a savings account, you can increase your cash buffer, giving you peace of mind and the ability to handle emergencies without derailing your business.
2. Improve Financial Control and Budgeting
Managing day-to-day expenses alongside long-term financial goals can be challenging, especially when all your funds are in one account. By separating your savings from your checking account, you gain better control over your finances. You can allocate specific amounts for future expenses – such as taxes, insurance premiums, or equipment upgrades, and transfer them into your savings account each month. This approach reduces the stress of large, periodic expenses and ensures you’re financially prepared when they arise.
3. Earn Interest on Your Savings
Savings accounts typically offer more interest than a checking account would, allowing your money to grow over time. While interest rates on savings accounts may vary, even a modest rate can contribute to your business’ financial health. This can be beneficial for small businesses looking to maximize their resources.
4. Enhance Your Business’ Creditworthiness
A strong savings balance not only boosts your financial security, but also makes your business more attractive to lenders. When applying for a small business loan, lenders often review your financial statements to assess your ability to manage debt and expenses. A healthy savings account can demonstrate your business’ financial stability and increase your chances of securing financing.
5. Protect Your Money from Overdrafts
Overdrafts can be costly and embarrassing, and they’re often avoidable. By linking your business savings account to your business checking account, you can use your savings as a buffer to cover any unexpected shortfalls. This can prevent overdraft fees and the stress of dealing with insufficient funds. Additionally, setting up online alerts can help you monitor your account balances and catch any fraudulent activity early, further protecting your business’ finances.
6. Prepare for Future Growth
A business savings account isn’t just about protecting your current assets, it’s also a tool for planning future growth. Whether you’re saving for expansion, new equipment, or hiring additional staff – having funds set aside in a savings account ensures that you’re ready to seize opportunities when they arise. A strong cash reserve can give you the confidence to make strategic decisions that propel your business forward.
First Financial Wants to See Your Business Thrive
First Financial is here to support your small business every step of the way. For personalized advice on opening a business account and managing your finances – call 732.312.1500, visit a branch, or explore our services online. Don’t forget to subscribe to our First Scoop blog for more valuable insights and tips on managing your small business finances effectively.
*A First Financial membership is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. See credit union for details. A $5 deposit in a Base Savings Account is required to establish membership prior to opening any other account/loan.