As a small business, what you do with your extra cash can make or break your financial future.
Stashing your extra away in a savings account can seem like the safest place to put it.
It is true that your money typically earns some interest while sitting in the account, but this rarely ever surpasses the inflation rate, meaning you’re actually losing spending power over time.
There are better, more profitable ways to grow your savings while in the bank. Here are our top tips.
How Do I Grow My Business Savings?
As a small business, growing your savings is vital to surviving the ebbs and flows of the market.
You want to have enough money to make it through business declines, expenses, and unexpected costs that may come up.
Here are our top tips for increasing your business savings:
- Choose a high-yield savings account
- Utilize invoice factoring
- Build your business credit
- Start investing
Choose a High-Yield Savings Account
When choosing a business bank account for your small business, make sure you prioritize interest rates.
Savings accounts with higher interest rates mean that your money earns more money simply by sitting in the account.
The average return on savings accounts is .004%. High-yield savings accounts typically offer returns 20-25 times this number, usually between 1% and 2%, which help increase your savings by thousands of dollars over the course of a year.
Along with prioritizing the interest rates, make sure you double-check the account’s minimum balance policy as well as standard fees to ensure you’re maximizing savings potential.
It can also be a good idea to automate your savings, so you save every month without even thinking about it. It is recommended that small businesses try to save about 10% of their profits each month.
Utilize Invoice Factoring
To build up your savings fast, invoice factoring can be an incredibly useful tool for small businesses. It usually takes between 30-90 days for a customer to pay an invoice.
Invoice factoring can help provide your business with cash immediately, so you can put it to work right away in your high-yield savings account, investments, or business expenses.
In short, invoice factoring is the practice of selling your unpaid customer invoices to a factoring company at a discount for a lump sum payment.
The factoring fee usually lies somewhere between 1% and 5%. The customer then fulfills the invoice directly to the factoring company, as you’ve already been paid.
Related: 5 tips for succeeding in your own small business
Build Your Business Credit
Like your personal credit, your business credit can open a lot of doors in terms of growing your business’ wealth, profits, and savings.
Building credit means, in short, that your company can be trusted to repay loans, which are an invaluable source of capital for businesses looking to expand, purchase inventory, and even hire new employees without touching your business savings and investments.
Building business credit is simple. First, with any lines of credit you’ve already established like a business credit card, make sure to pay all your bills in full, on time.
Moreover, paying vendor payments on time helps build your business credit as well. Make sure your most utilized vendors report to the business credit bureau, as it is not required and can impact your ability to build credit this way.
Like your high-yield savings account, investing your business profits is another great way to ensure your money is working for you while you’re not using it.
Investing your business funds can seem risky, but there are a number of safe, low-risk strategies that will get you great additional returns.
There are a number of ways to invest your business profits. Higher-risk investments include the stock market, managed funds, and cryptocurrency, and low-risk options include bonds, CDs, and equities.
You can also choose to invest back into your business with more personnel, new equipment, more marketing, and even employee training.
Be sure to consider the actual return on investment you’ll get if you choose this route to ensure you’re spending strategically to grow your business.
Small Business Saving FAQs:
How much money should a small business have in the bank?
It is recommended that small businesses have between 3-6 months of operating expenses saved.
How should I start growing my savings as a new business?
Starting off with a high-yield savings account is a great way to get started as a small business. You’ll start earning a return on your savings, which can help you grow faster.
The Bottom Line
Having a plan in place for financial stability and growth will make or break the ability of a small business to survive long-term.
The most important thing is that you think strategically about where you want to take your business, as well as how you plan to get there.
Follow these tips and you’ll have the flexibility to grow your business as you plan while still being able to manage day-to-day expenses.
More tips? Share your ideas in the comments down below.