Key takeaways: 

• A business savings plan is crucial for long-term success. 

• It’s best practice to separate and automate your savings for organization and clarity. 

• Be sure to put your savings into an account that earns interest. 

• Flexibility is key. Your savings plan will change as your business grows and evolves, and that is okay! 

Creating a savings plan for your business is more than just a good idea – it’s necessary for long-term success. Many business owners find themselves only focusing on generating revenue and tend to neglect a key part of managing their business’s future: creating a business savings plan. Without a clear savings plan, your business can be vulnerable to slow revenue seasons, unexpected expenses and even missed growth opportunities. In this blog, we will cover what a savings plan is, why you need one and the best way to go about creating one specific to your business’s goals.

5 reasons you need a business savings plan

Having a business savings plan is important for long-term stability. It provides a safety net, which allows your business to weather slow seasons or unforeseen circumstances without jeopardizing daily operations. According to Aaron DiGregorio, our Director of Business Development, Treasury Management, “Business owners pour their time, sweat and every dollar into building their dream. That's why a cash nest egg is crucial – providing peace of mind against inevitable challenges and ensuring their hard-earned money works just as hard for them.”  Here are 5 reasons you need a business savings plan:

1. Financial cushion: Think of a business savings plan as your shock absorber. It’s an accessible pool of savings that is specifically set aside to cover unexpected expenses. It’s a buffer that allows your business to remain stable even when revenue dips or a major cost suddenly arises.
2. Funding future growth and opportunities: By consistently building this financial reserve, you will have access to the capital needed to invest in your business’s future if a growth opportunity arises.
3. Improved financial management and organization: Having a savings plan gives you a clear separation of your operational funds from your strategic reserves. It can help make budgeting more precise and give you better visibility into your cash flow and capital.
4. Earning interest: Beyond a savings plan being a financial buffer, there is the added benefit of earning interest on the funds that you tuck away. While your funds remain safely accessible for future needs, they can also work for you when you park them in a business savings account that offers competitive interest rates, making your hard-earned money work harder.
5. Peace of mind: One of the most invaluable benefits of a business savings plan is the peace of mind it can provide for you. The sense of security allows you to focus on running your business effectively, making confident decisions without the worry of potential cash flow shortages or unforeseen financial struggles.
   

How do business owners create a business savings plan?

To make sure your hard-earned money is working to protect your financial future, instead of just paying today’s bills, you must properly plan and build up your business savings. A “one size fits all” approach does not apply to establishing your business savings plan. A common goal is to aim for 3-6 months of daily operating expenses. To create a business savings plan, you’ll need to first analyze your income and expenses to identify extra funds. This will help you set clear and realistic goals. From there, it’s best practice to park those funds in a savings account that accrues interest, like a high-yield savings account. Remember, this isn’t a static goal. Your ideal plan will require tweaking and adjustments as your business grows, evolves and needs change. With that understanding, here is the best way to get started: 

1. Define goals and purposes: Are you wanting to create an emergency fund? Have extra cash in case of unexpected events? Save up to invest in new technology? Make sure you know what you’re saving for and how much you need.
2. Budget and analysis: Analyze which expenses are necessary and figure out ways to cut out unnecessary costs. These can automatically be the funds that go into your savings account. 
3. Separate business and personal finances: This is non-negotiable for clarity, organization and tracking. The best practice is to put these funds into a business savings account that earns interest. 
4. Automate your savings (aka pay yourself first): Instead of seeing savings as “what’s left over at the end of the month” (which often ends up being nothing), you treat it like a fixed, essential bill, like rent or utilities. This amount can vary monthly based on your revenue. 
5. Don’t be afraid to adjust! Your goals will change, your revenue will change and seasonality can cause your savings plan to change as well.

What is a business savings account?

A business savings account is a great way to store funds that your business won’t need to access daily. Every business has seasons when sales are slow, and cash flow is low. A business savings account allows you to have peace of mind, knowing that you can tap into it whenever your business needs a little bit of extra cash. 

It’s always a good idea to separate these funds to have a clear distinction between money that is used for day-to-day operations and money that is being tucked away for savings. Having a business savings account dedicated just to your business savings gives you complete financial control. This bit of organization provides a clear division for funds that are not needed for day-to-day operations, which gives you a buffer for unforeseen circumstances.

Creating a savings plan for your business is crucial for your business’s long-term success. Having this cushion of cash can help protect against market changes and unexpected costs. It’s best to start by defining your goals and analyzing your budget to identify available funds. Then, be sure to deposit those funds into a dedicated business account, ideally a high-yield savings account that allows your money to earn interest. A secure financial future for your business is closer than you think!

FAQs  

Q: How much should my business save? 

A: A common recommendation is 3-6 months of operating expenses in case of emergencies. Beyond that, this number varies based on our goals, industry, cash flow, and growth plans. 

Q: What is the difference between a business savings account and a business checking account? 

A: A business checking account is for frequent day-to-day expenses and typically earns little to no interest. A business savings account often earns higher interest rates and is a great place to store money that you are not planning to touch very often.  

Q: When is the best time to open a business savings account? 

A: As soon as possible. The best time to open a business savings account is as soon as your business starts generating consistent income and has cash flow that goes beyond immediate expenses.  

Q: What if my business experiences an unexpected cost and I need to access savings quickly? 

A: Business savings are generally liquid, which means you can access funds pretty quickly. Depending on what banking institution you use, this can vary. Live Oak Bank allows you to access funds within 1-3 business days, depending on the time of day you initiated your electronic transfer.  

Q: How do I create a business savings plan online? 

A: Opening a bank account and saving your money has never been easier thanks to online banking options. Pick a bank that offers online savings accounts (like Live Oak), sign up online, and you’ll start saving in no time!