Building a Nest Egg for Your Small Business
Building a financial cushion for your business is never easy. Experts say that businesses should have anywhere from six to nine months worth of income safely stored away in the bank. If you're a business grossing $250,000 per month, the mere thought of saving over $1.5 million dollars in a savings account will either have you collapsing from fits of laughter or from the paralyzing panic that has just set in. What may be a nice well-advised idea in theory can easily be tossed right out the window when you're just barely making payroll each month. So how is a small business owner to even begin a prudent savings program for long-term success?
Realizing that your business needs a savings plan is the first step toward better management. The reasons for growing a financial nest egg are strong. Building savings allows you to plan for future growth in your business and have ready the investment capital necessary to launch those plans. Having a source of back-up income can often carry a business through a rough time.
When market fluctuations, such as the dramatic increase in gasoline and oil prices, start to affect your business, you may need to dip into your savings to keep operations running smoothly until the difficulties pass. Savings can also support seasonal businesses with the ability to purchase inventory and cover payroll until the flush of new cash arrives. Try to remember that you didn't build your business overnight and you cannot build a savings account instantly either.
Here are some suggestions to help you build that nest egg:
- Start with a 401(k) plan. Remember that the reason you went into business wasn't so that you could spend every waking moment worrying about the business only to find that you haven't saved a penny when retirement comes. Take a few minutes to review your retirement plan options and start putting even a small amount aside for both your future and that of your employees. Retirement plans are a great way to start a savings program, tax deferred. You can have the contributions automatically withdrawn from your paycheck or checking account each month so you won't feel like you're paying a bill but building a retirement account. The benefit of the 401(k) plan is that you do not pay income tax on the savings until you withdraw it. This allows your money to grow tax-deferred and means your money is working harder for you while it's invested.
- Preferred Asset Allocation can help you avoid savings procrastination. By establishing a consistent direct deposit investment program, the money goes directly into the investment account before you ever see it in your checking account. Funds can then quietly grow with little attention from you. Try to resist the urge to shift the funds to another fund when the market outlook is grim. Remember that slow and steady wins the investing race.
- Keep a watchful eye on your budget. Review your books monthly and see where you can trim expenses and reroute the savings to a separate account. This will also help to keep you on track with cash flow and other financial issues. While it can be quite alarming to see your cash flowing outward with seemingly no end in sight, it's better to see it happening and put corrective measures into place, rather than discovering your losses five or six months too late.
- Investigate rebate programs with advertisers and channel partners. Often times, these partners (such as yellow page advertising and even manufacturing partners) will offer a percentage kick-back for co-marketing efforts where you utilize both their brand and yours. Refunds can range anywhere from 5%-15% of the advertising costs back to you in a rebate check. This bonus money is perfect for jump-starting a business savings program.
- The best way to establish small business savings is to simply start. Even if the sum doesn't seem considerable, if you're consistently depositing a steady amount you'll see it grow over time. Many banks offer business savings accounts free with a business checking account and are happy to set up electronic fund transfers on your schedule. Determine a base amount and see how it goes. If the amount is too large, reduce it slightly. If you find that you have a little more cash to deposit during a peak season, make a separate deposit or increase your regular pay period amount.
No matter how you look at it, saving for small business is crucial to taking the company to the next level in growth. How you get there can be as creative as you wish, but you must take the first step and start the process.
Written by Fiducial. If you'd like more information about how to begin or implement a savings program at your business, talk with a Fiducial small business advisor by calling 866-FIDUCIAL or visit the web site at www.fiducial.com.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.