Does Your Company Have A Savings Account?
When I grew up, a hundred years ago, most families had a savings account. The purpose would vary from saving towards a major purchase (yes people used to do that) to putting money back for a rainy day. People planned for the inevitable unexpected expense which could vary from a major car repair to the replacement of an appliance. Many even saved towards college for their children, a vacation and/or retirement.
In our “I want it now, put it on the card, world.” few people save money any more. The principle of saving money, however, is still sound and guess what, it applies towards your business as well. Unexpected expenses will come up. It’s not a matter of if, it’s a matter of when, they will occur. Like families of the past, wise business owners need to create a rainy-day fund. Small businesses have an endless need for extra cash. It might be to pay an unexpected tax bill or to replace of one of the vehicles engines or transmissions. Sometimes extra cash covers an unexpected trip or medical bill. Often, it’s just plain old cash flow issues like when you find out that $25,000 check that was due this week won’t come in for another 90 days
A savings account for the above items is just as important as any other cost of doing business. A company wouldn’t think of not including rent, insurance, salaries or matching taxes in their pricing. Those are all legitimate costs of doing business and need to be covered by the customer through your pricing structure. Guess what, that savings account is just as much a “cost of doing business” as rent. If the company can’t cover unexpected costs when they occur, it will go out of business!
Don’t Confuse Net Profit with the Savings Account
Net profit is needed and necessary. Profit covers increased receivables; general cash flow needs of the company as well as funding growth and/or expansion into other geographic areas. Net Profit is what’s left after all the expenses of running the company are covered. A savings account, however, is a direct cost of doing business. The only difference in savings and rent is when those dollars will be spent. Rent comes up the first of each month and is therefore a planned expense. Savings, on the other hand, is an anticipated expense……it’s just that the owner doesn’t know how much it will be or when it will occur.
My suggestion would be to include a line item in your overhead called savings. Determine how much you would like to put back each month and then be sure to include that “cost” in your pricing. It really is a cost of doing business and like any other cost, the customer needs to pay for it through your hourly rate. When it’s time to pay bills each month simply write a check for “savings” and put the money in a savings account or mutual fund until it’s needed.
It’s amazing how much better you will sleep at night knowing some money is set back for a rainy day. Oh, and one other thing. When the saving account grows a bit remember you are the owner so it’s your money. It’s ok to take a few dollars out every once in a while, for a long weekend, or to bless your employees or family!
- Office Theft:Are Checks and Balances in Place? Part 1 - November 6, 2020
- Does Your Company Have A Savings Account? - August 3, 2020
- What Are You Building and Why? - June 15, 2020
BECOME AN ACCA MEMBER