8 Reasons Why A Business Savings Account Is A Must

When it comes to your business finances, things like managing a business budget, understanding your balance sheets, keeping an eye on your expenses, etc., are all key components to succeeding financially. However, when it comes to business bank accounts there tends to be confusion about what accounts to have and how many.

As a business owner, having a business bank account is important. You want to ensure you are tracking your business finances separately from your personal finances. But what about a business savings account? Have you found yourself wondering, “Do I need a business savings account”? Well, in the article, we’ll go over key reasons why you absolutely do!

Why you need a business savings account

Having a business savings account (or accounts) that you consistently contribute business funds to is very important. But why do you need a business savings account? There are a variety of reasons, and below I highlight some of the most important ones.

1. For business emergencies

Well, just like in your personal life, you want to put money away for unplanned business expenses or emergencies. In addition to having business insurance, you also want to build up at least three to six months of capital to cover your monthly business expenses.

For instance, to cover things like rent, online tools, payroll, etc., in the event of a slow season or business downturn. This way, you are financially covered for unexpected events, and this can prevent you from having to shut down your business.

Keep in mind that the funds you put aside in case of a business emergency should be easily accessible and liquid. This means you should not tie this money in projects or other business investments.

2. For future business projects

You can open a business savings account for future business projects or to save for something that will allow you to expand your business. This way, you don’t need to get into business debt (which will cost you more due to interest). The money you save can also be put towards marketing and PR for your products and services to expand your customer base.

3. To pay your business taxes

Many business owners get caught up in the excitement of making all this cash that they forget all about their taxes. However, when tax season rolls around, the IRS will be expecting their cut, and you don’t want to play with Uncle Sam.

A business savings account is a great place to hold money for your quarterly or yearly tax payments. Talk to your accountant about how much money you should be putting away towards taxes. A good place to start is 30% of your gross income.

4. To protect your money

Bank account fraud is abundant, and you can protect your money better with a business savings account that isn’t actively used for transactions. This is because, with a business savings account, your account information is less likely to be saved with vendors and the like. Plus, business savings accounts in the US usually come with FDIC protection. This means it is insured up to $250,000, keeping your money is safe. A good money habit is to keep the majority of your funds in a business savings account to prevent theft, and it can help prevent the temptation of spending it as well.

5. To earn interest

One of the best ways to grow your money is to make it work for you. A business savings account can earn you interest on your money. Shop different banks to see who offers the highest interest rate so you can make the most on your money. Don’t forget to ask about the terms such as minimum balances, transaction limits, etc.

6. For overdraft protection

Of course, you want to do everything possible to prevent over-drafting your checking account, but things happen. We all forget to pay a bill here and there. Setting up a business savings account for overdraft protection can prevent unpaid items and costly fees. Using your savings as overdraft protection means that the money will be automatically transferred from your savings into your checking account.

7. To replace equipment

In time you will likely have to replace equipment that you use to operate your business. Items such as computers, printers, cash registers, etc., can be costly to replace, and having money set aside for such expenses is vital. Having money to reinvest in your business is the key to growing your business and building wealth.

8. To improve your banking relationship

When applying for a business loan having a business savings account can increase your chances of approval. Having funds in your savings shows the bank you can save money and that you will be able to pay back the loan. Financial institutions review bank accounts and previous loans to aid in making their loan decisions. Bulking up your business savings account is a win-win.

How many business savings accounts should you have?

To avoid confusion, separation of assets is important, so when it comes to the number of business savings accounts to have, you can have multiple. For instance, you can have one for taxes, one for emergencies, one for future projects, etc. The decision on the exact number depends on how you want to organize your business finances. Be sure to keep your day to day transactions strictly to your checking account.

How much of your business income should you save?

We’ve learned that the 10% rule doesn’t cut it when it comes to personal savings, so what about saving for your business? Similarly, it’s best to save at least 20% of your business income if possible. This ensures you are properly saving for emergencies, and other business needs. You also want to consider investing some business funds to help it grow faster and set yourself up for a successful financial future.

The best way to ensure you save regularly is to automate your savings. You can set up automatic transfers with your bank to transfer a set amount every week. This will help you put saving money on auto-pilot and keep you from forgetting to make transfers.

Don’t delay start saving for your business today

One of the best money moves you can make is to set up a business savings account. Having funds available for emergencies, taxes, business projects, etc., can help you become financially successful with your business. Remember to keep the majority of your money in savings to earn more with interest and protect you from bank fraud. By applying the right business strategies and avoiding financial mistakes, you become the successful business owner you desire to be!

The post 8 Reasons Why A Business Savings Account Is A Must appeared first on Clever Girl Finance.

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