Many small business owners overlook the need for a business savings account. Some owners they think they should keep every penny in their current account.
But having a business savings account makes a lot of sense. Regularly putting aside small amounts of money helps maintain your company’s financial health. It creates a cash cushion for future investment or unexpected costs.
If you wondering if you should have a business savings account, here are the main benefits to your and your company.
Business savings accounts
A recent survey says that small businesses are losing out because they’re offered lower interest rates than big firms. But don’t let that put you off. Saving for a rainy day makes as much sense in business as it does personally. Planning your business savings should be part of your business budgeting.
We will look at alternatives to business savings accounts in a future blog. But for now, let’s look at why it’s beneficial have a business savings account.
A business savings account allows you to put money aside and takes the temptation away to fritter away on unnecessary items. You will also earn a return on your cash reserves.
Your current business bank will no doubt offer a savings account. But if you want to look for the best deals, check out the current rates from the Best Business team.
How much you decide to save is up to you. But many experts suggest saving 10% of your profits.
Should I have a business savings account?
Here are four reasons having a savings account is a good idea. It’s not mandatory for limited companies, but it’s advisable!
Expect the unexpected
Small business savings accounts are liquid assets. It means you can access the cash pretty quickly. How quickly depends on the notice period your bank account allows. But having liquid assets means any unexpected bills can be paid without delays. Whether it’s to replace a PC that suddenly dies or needing an unexpected item, business owners should always expect the unexpected.
Save for tax payments
Taxes are inevitable in business. But they’re also easy to neglect when you’re a busy business owner. You should always monitor cash flow and forecast your finances. But when it comes to day-to-day life, what you owe in tax can often be overlooked. That is especially the case if your profits are creeping up and higher than you forecast. Having reserves for tax payments in a business savings account helps avoid penalties as you won’t spend every penny. It also gives peace of mind!
With interest rates higher, you can get a little extra from deposits in your savings account. It’s true that the rates for SME business savings accounts are not generous but it’s better than nothing! Longer notice accounts give you better returns, but it means you can’t access the cash as quickly. So, bear that in mind.
A savings account can help directors when it comes to selling the company. If you decide to retire and the valuation isn’t as high as planned, you have the extra security of the cash in your savings account.
The Financial Services Compensation Scheme (FSCS) means a limited company or LLP have up to £85,000 protected in each savings account. This is separate to your individual protection for personal bank accounts. If you only have a current account, some of your funds may not be protected if it tops £85,000.
What to do next
We believe that financial forecasting and budgeting is essential for any business. If you don’t do that, then contact our experienced team today. We work with companies across the UK.