Whether you’re a sole proprietor or run a growing business, you’ve likely experienced an occasional tight month or season. A client was late in paying a large invoice. A sale was postponed until the following month. Several unexpected costs hit at the same time. As a result, were you forced to make adjustments in order to bridge the gap? Did limited resources cause you to miss out on an opportunity? If you can relate, it’s time to build a savings strategy for your business.
Step #1: Open a savings account and set a target.
The first step is to establish a savings account and a set a goal for how much you want to save by the end of the year or within the next few years. The amount will vary based on your company's size, number of years in business, income and projected expenses on an annual basis. Some experts recommend have a minimum of three months of reserves available at all times. If you spend $10,000 a month, target setting aside $30,000 in a savings account where you can earn interest.
Step #2: Review and adapt as needed.
As you work toward reaching the target for your business savings account, review it regularly to make sure it still makes sense and is feasible for your business. As your company grows, you will have more income, but keep in mind that your overhead costs will also increase. Areas such as manufacturing, office space, storage, marketing and other areas will grow as your business succeeds.
Step #3: Develop alliances.
If you're in an industry with high overhead costs, consider forming an alliance or partnership to trim some of these expenses. A business alliance often involves the exchange of resources between two parties, giving both access to what the other has to offer. For example, if you're working in the tech industry, partnering with a company that offers customer support services rather than trying to employ and train a staff offers a great benefit and saves time. Other examples of shared resources may include transportation, employee expertise, marketing, and technology.
Step #4: Plan for growth.
Finally, determine how much you'll need to accelerate growth in your business. When you reach a certain amount in your savings account, you may feel confident enough to move a portion of that money back into the business, whether it be in research and development, marketing, product inventory or other areas.
Once you reach your first goal, set a new goal and work toward increasing your company's savings. Be sure to regularly review your allocation of assets, growth rate and future business plans. With a solid savings strategy in place, you will feel more financially prepared for the opportunities and challenges that come with running a business.
LegacyTexas Bank offers several savings solutions designed to help you grow your business and reach your goals. Learn more at LegacyTexas.com/SmallBusiness. Member FDIC.