How a Savings Account Can Help Manage Cash Flow in Startups

The ability to effectively manage cash flow in your startup is essential to ensure your business always has adequate cash to meet its financial obligations. These may include payments for salaries, inventory, rent, utilities, and other expenses. 

Limited or inconsistent cash flow is a common financial challenge that small businesses commonly face. It’s the primary reason for business failures in the early phases. According to CB Insights, running out of cash and failing to secure new capital are among the top reasons startups fail, accounting for 38 percent. 

As the most crucial part of any business operation, managing your startup’s cash inflow and outflow is imperative. One way to do that is by opening a high-interest savings account. Find out how it can help your startup improve its cash flow management. 

Protects Your Startup From Emergencies

A savings account for your startup is a liquid asset you can access whenever you need to pay for emergency expenses. It can help your business prepare for a slow season or unexpected financial difficulties. 

Even if your startup is experiencing minimal downtime, sudden market fluctuations can cause you to lose customers and revenue. These can affect your company’s cash flow. With a dedicated business savings account, you have a financial cushion to meet those unforeseen needs. 

Yields Interest on Your Deposits

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Banks pay you interest for holding your funds in their institutions. The interest can compound over a long enough period and significantly contribute to the growth of your startup emergency fund. As a result, you have more cash readily available for unexpected expenses and opportunities. 

For instance, a new competitor may enter the market. You can tap your business savings account to invest in new marketing strategies to maintain your competitive advantage. You can also use the earnings to expand the startup or implement new business projects. 

Enhances Your Position To Borrow

With a business savings account, you may only need to borrow less frequently for significant expenses. But there will still be instances where you must take out a loan for business expansion or other investments. 

Having a business savings account with a solid balance enhances your startup’s position as a more secure investment for your lender if you need to secure financing. Likewise, it can help you attract investors. 

Keeps Track of Your Expenditures

Managing cash flow involves monitoring your company’s expenditures. Typically, you use a transaction account for paying suppliers and receiving payments. 

However, that can be challenging to track when all those transactions come in and out daily. Allocating funds to a savings account can make monitoring your business’s daily expenses easier. It can also help you budget for tax payments. 

Key Considerations When Selecting a Business Savings Account

Savings can be a strategic asset, helping your startup deal with unforeseen expenses and endure fluctuating market conditions. It’s a financial buffer from the uncertainties businesses often experience in the early stages. But not every business savings account is the same. 

There are certain considerations to ensure the selected account will effectively meet what your business wants to achieve. The following factors play a role in determining a savings account’s overall suitability and effectiveness for your startup. 

Interest rates

When opening a business savings account, ensure you opt for one that yields a high percentage of interest, as it dictates the earnings on your account’s balance. A higher interest rate will result in more significant returns on the funds you save. This lets you earn more as you grow your savings. 

Deposit requirements

Most banks require a minimum cash deposit to open a savings account. They may also have a minimum balance you need to maintain every month. 

Consider whether these requirements are realistic for your startup. Maintaining a certain balance may not be practical for cash flow management, especially if your startup has fluctuating revenue. 

Fees

Most savings accounts come with several fees. These charges can significantly reduce the account’s prospective earnings. Exorbitant fees can offset the advantages of high interest rates. 

Consider working with a bank that waives fees under specific circumstances. Many banks do this if you have an automatic deposit or maintain a combined balance across various accounts. 

Accessibility and convenience

Location and ease of access are essential considerations for efficient business operations. When selecting a business savings account, factor in what your startup specifically needs. These may include robust online services, ATM access, or a physical office nearby. 

Online transactions with your savings account can help you save time and simplify financial management. Likewise, access to the bank’s branch locations and ATMs is a significant convenience, mainly if your startup handles cash or requires regular check deposits. 

In Conclusion

A business savings account is a great place to establish a financial safety net for your startup. It empowers you to accumulate more earnings on the funds you save or don’t need to access daily. But there are more ways to manage your cash inflow and outflow more effectively. 

To name a few, think about performing consumer credit checks, improving your invoicing procedures, and providing discounts for early payments. You’ll also need to evaluate your marketing, product development, and customer service decisions.