You must be knowledgeable about savings accounts. In other words, they are called a rainy day fund that you can fall back on when unforeseen expenses arise. Savings accounts are built to meet personal expenses.
A general rule of thumb says that it must have a size worth three months of living costs, meaning you must have stowed away money that can cover all essential expenses for at least the next three months.
Such a huge size of a rainy day fund is recommended despite the fact that it is difficult to build as you may lose your job or suddenly need a lot of money.
As you put in some money for your personal unexpected expenses, you should also open a business savings account. You can dip into it when you need a larger sum of money to meet your planned or unplanned business expenses.
Having a business savings account is vital as it can prevent you from rushing to direct lenders for start-up business loans all the time. Without any worries and hassle, you can meet unforeseen expenses. Nevertheless, if you still require little funds, you are free to apply for these loans from reputed online lenders.
Why does it make purpose to open a business savings account?
A corporation bank account will help with day-to-day transactions. You can operate this account to settle bills, salaries, rent, regular maintenance, and purchases. But you might need an urgent need of cash for an irregular expense. If you withdraw those funds from your business bank account, you may fall short of cash to pay for your regular transactions. Therefore, it is vital to open a separate business savings account.
This account is used for storing funds. You can move some money from your regular business account to your savings account based on your needs for transactions throughout the month. You can either directly use this account when you need extra funds or transfer the money as needed to your regular account to use it for payment.
Remember that you do not have to open accounts in the same bank. Fees, interest rates, and minimum balance requirements vary by bank. Before opening a business savings account, you should compare these features first.
Given downward are the justifications why you should open a business savings account:
Save for unexpected business expenses
As the business has dynamic nature, you may come across a need for larger funds. It is not compulsory that you will always need money for some bad reasons. A good opportunity will likely come your way, and you need money to invest in that project.
Having a separate savings account for your small business entrepreneurs is important to have peace of mind. When you have sufficient funds set aside, you can easily invest money in propitious projects. In fact, you can easily plan around new projects when you do not have any cash problems.
The loan is a good alternative to supply extra cash, but this might be slightly expensive. Since you are a start-up, a lender would like to pursue your potential to make money from your project. In addition, your credit history will determine the charged interest rates. Bear in mind that business loans are expensive even if you have got a good credit score, which might be extortionate in case of a less-than-perfect credit rating.
Therefore, you should have a savings account to meet unexpected or unplanned business expenses. They can help you save a lot of money in interest that you would pay otherwise on a business loan.
You can easily plan for future expense
Having enough money in your savings account will help you plan for your future expenses. You can decide on priorities by allocating your budget to different expenses. These expenses may include renovation and even retirement. When you plan around each penny in your business savings account, you can easily stay away from financial stress.
You can earn interest
You will receive a high rate of return on your business savings accounts compared to personal savings accounts. The interest rates charged by different banks may vary, so you should do proper research before deciding on the bank where you would open a savings account.
After some time, your balance has grown significantly. Even if you withdraw a handsome sum of money, you will likely find that your savings still have quite sufficient money. If so, you should take a fixed sum of money to buy a fixed deposit. Your money will stay intact, and you will earn high interest.
You can avoid overdrafts
Unexpected higher business costs and increased building rent or maintenance could be a few reasons why your regular business account needs more cash. In this situation, you do not need to turn to overdrafts. They are extremely expensive.
Instead, you should transfer funds from your savings account to your regular account. You can meet your business expenses without borrowing even a little penny. However, sometimes you need to borrow to fill the gap. Borrow after thorough research.Must Read: Bank Transaction Monitoring: Safeguarding the Financial Ecosystem
What are the limitations of having a savings account for your business?
Undoubtedly, there are some benefits of having a business savings account, but they are also subject to some limitations. You will have to maintain a minimum balance and pay some fees. Further, if you stow away too much money on purpose, you might lose great investment opportunities.
The bottom line
Opening a savings account for your business can help you fund unexpected expenses. However, it is intrinsic that you only stow away a little money because you may lose some great business opportunities that yield higher returns.
Make sure you keep a balance between your regular business account and business savings account. Understand your business expenses and figure out how much you have the scope to pull from them and transfer money to your business savings account.