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Help Your Small Business Thrive With These 3 Smart Money Moves

Here's how experts say you should smartly manage your surplus.

Small businesses continue to feel the effects
Small businesses continue to feel the effects of the ongoing pandemic, but those capable of managing cash reserves have a better chance of not only surviving, but thriving. Shutterstock

While the pandemic has had devastating effects on many small businesses, there are also some that have managed to profitably navigate the turbulent times over the last year. A new study by MIT Sloan School of Management finds that by the end of May 2020, 18% of small business owners had higher savings account balances than they did at the start of the year. Beyond a stroke of luck, working with a trusted bank to carefully manage cash reserves is often the answer to just how they've done it—something that continues to be as important moving forward as it has been to date.

Here's how business owners can make sure they're using their savings wisely:

Keep a Cash Reserve

Having a rainy-day fund can provide an extra layer of security to help a business get through a period of slower sales or cover an unexpected expense without dipping into personal funds.

"Cash reserves allow you to prepare for the unforeseen, and to be able to make long-term plans for your business," says Tim T. Mercer, entrepreneur and author of Bootstrapped Millionaire: Defying the Odds of Business.

The size of your emergency account balance will vary, depending on your monthly overhead and accounts payable, and your access to other sources of funds. Working with a service-oriented bank that specializes in small businesses, like Central Bank, can be especially helpful in understanding how to better manage your cash flow. If you work with a trusted institution that actually listens to your pain points and can tailor a cash management strategy to your unique business, building up sufficient reserve funds will begin to feel doable. Central Bank, for example, connects business owners with a representative who can recommend the right cash management for them.

Of course, starting small and building from there is often the most practical first step towards increased savings. To do so, set up an automatic deposit into a designated account each month. They'll add up over time, and even a small cushion is better than none.

Opening a business savings account
Opening a separate business savings account encourages increased savings and helps with more accurate snapshot accounting—both crucial for small businesses. Shutterstock

Shop Around for the Best Place to Keep Your Savings

It's important to keep your cash reserves in a separate business savings account. This not only makes it easy to distinguish those funds from your day-to-day operating expenses, but should allow you to earn interest on your reserves, too.

With a protected business savings account like that offered by Central Bank, your savings will earn interest, credited monthly, and be FDIC protected with the Insured Asset Program—all while being manageable and accessible 24/7.

Mercer says that keeping funds in separate accounts also helps with mental accounting. "When all of your business' money is lumped together in an operating account, it can give you a false sense of confidence that you have a surplus," he adds.

You may opt to keep your funds in a traditional business savings account, which offers greater flexibility with low monthly fees, or a high-yield savings account that trades flexibility in accessing your funds for much higher annual interest yields. Another option is to use a money market account, such as the Small Business Money Market Account from Central Bank, which has a competitive interest rate, but offers more liquidity than a traditional savings account, allowing you to access your funds whenever you need them.

Whichever path you take, working with a bank that understands your business' unique needs is invaluable. Central Bank, for example, offers the technology and tools of an enterprise bank—like their award-winning mobile banking app and online business analyzer system—with strong roots in the community. This unique positioning and 120-year history combine to make Central Bank the top bank in every market they serve, and the 4th Best Bank in America overall, according to Forbes. In other words, a bank you can trust will work for you and your business.

Cash Reserves
As most businesses are scaling back on marketing, entrepreneurs that have cash reserves they can invest in getting their message out will be poised for success once the economy rebounds. Shutterstock

Invest in the Business

Economic downturns can be painful for many businesses, but for those that can ride out the storm, there are also unexpected opportunities. Many businesses are in survival mode, simply trying to keep their doors open, but businesses that have cash on hand and are able to invest strategically—especially as competitors are scaling back—often find themselves poised for success when the economy inevitably rebounds.

Once you've built up a comfortable cash reserve, set yourself up for the future by investing now in things like marketing and advertising, or indirect improvements to your product or service.

"For most business owners that have a company that's profitable and generating cash, the best rate of return will be to invest cash in their business," says LJ Suzuki, a fractional Chief Financial Officer and founder of CFOShare. "The stock market will never do as well as their business does."

The Bottom Line

It's always best to be smart about how your business manages its cash reserves, but in times like these—when economic uncertainty remains high—it's even more critical. Making strategic decisions about how much to save and where, and what to invest will not only carry your business through these difficult times, but will set you up for future success too.

To learn more about exactly what innovative banking solutions are right for your business, visit Central Bank to connect with a representative knowledgeable about everything from cash management strategies and small business loans, employee payroll assistance, and more.

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