4 Reasons to Open a Savings Account for Your Business

 

 

When you were a child, your parents opened your first savings account. As you grew and came into bills of your own, you opened a checking account to have better access to your money. Now, as the owner of a business, you’ve probably opened a business checking account so that you can pay your suppliers and separate enterprise money from your personal accounts. If you really want your business to be as sound as possible, consider going one step further and opening a business savings account.

 

1. Prepare for tax time

If you have spent time as an employee of an established business, you know that the usual automatic withholding of taxes can be extremely helpful every time that tax season rolls around. As a small-business owner, you are the one responsible for knowing how much money you owe in taxes and paying that amount to the federal, state and local governments on time. A business savings account can be a great place to store or hold the money you know you will need for tax payments. Not only will you yield some interest from setting the money aside, but you will ensure that you or your partners don’t spend it on a business investment instead.

2. Save for a rainy day

When you’re managing your personal funds, your savings account more than likely holds the money you are keeping in case of an emergency, such as a loss of job or a medical crisis. A business can use a savings account for the same thing. Amanda Cameron of Patriot Software advises that a savings account is a great buffer to cover unexpected costs that might otherwise severely hinder or even cripple your business. As liquid assets, you can access funds quickly to fix any problems, such as broken  equipment or an accident, to make sure that any work stoppage lasts the shortest time possible.

3. Earn interest

Interest rates are finally going up in the United States, which means that savings accounts might once again start earning meaningful interest. Regardless of how much interest your money accrues, the team at the Money Supermarket Financial Group points out that you will almost certainly earn a more competitive rate of interest with a savings account than in a checking account. Whether you intend to use the money in the account for a rainy day or just have it there for safe keeping, keeping it in a savings account ensures that your money is working for you.

4. Stay organized

Just like an individual can have more than one savings account, a business can also have multiple accounts. While it might seem confusing to maintain separate accounts, it is a very basic way to make sure that all of your money will be used for its intended purpose. Keeping your equipment funds in an account apart from the emergency money will help ensure that you don’t accidentally overspend in an emergency and not be able to pay for upgrades your tools need to stay competitive. This ensures more stability, even if it comes at the cost of added account maintenance.

Consider talking to an associate at your bank or your financial advisor for the best advice for taking your business savings to the next level. A business savings account is by and large a sound decision, but there may be options available to you that work better for your business’s needs.

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How to Value Your Business When Selling 

There are many reasons to sell a business as well as many reasons to have an up-to-date business valuation even if you aren’t selling. Regardless of the reasons, a number of factors will play a part in determining the value of your business. On top of that, all of them require a professional to properly assess.

Hire a professional

The first and most important rule of valuing your business is not to do it yourself, as owners tend to — understandably — overestimate the worth of their enterprise. “There is a level of emotional attachment owners place on their businesses; after all, you put years of blood, sweat and tears into its creation, therefore it feels like it should hold more value,” Andrew Bass, Chief Wealth Officer for Telemus, writes in a March 2018 article for Kiplinger.com.

It is going to be impossible for you to step back and make an objective assessment of your own business, making it important to get your valuation done by a professional. “It’s not uncommon for owners to think their business are worth more than they actually are, and they might balk at the legitimate offers being made,” Bass says, though he adds that it can go the other way around as well. “Unique tax and business aspects of the business and environment may result in greater value!”

A Chartered Business Valuator, or anyone valuating your business, such as an accountant, can use a number of business valuating methods to determine a fair price for your company.

Earning value

Often regarded as the best way to value an establishment, the earning value approach attempts to estimate a business’s ability to generate wealth in the future. “With this approach, a valuator determines an expected level of cash flow for the company using a company’s records of past earnings, normalizes them for unusual revenue or expenses, and multiplies the expected normalized cash flows by a capitalization factor,” writes Susan Ward, co-head of IT consulting business Cypress Technologies, in a September 2017 article for TheBalance.com.

One of the weaknesses of this method is that it is difficult to assess the percentage of business that may be lost by a change of ownership, which will affect customer loyalty. Ward says this can be mitigated in several ways, such as when a trusted family member takes over the business.

Market value

The market value approach attempts to determine the value of your business based on the value of similar businesses that have been recently sold. While this method is trickier than others because of the requirements involved — there need to be sufficient similar businesses to compare yours to and sufficient information about their sales, which can be difficult to acquire — it also comes with some advantages to the business owner. “Using competitor valuations to establish your own makes it difficult for investors to tell you that your valuation is too high which is often a tactic used by investors to bring your price down in order to obtain more equity for their investment,” says Alejandro Cremades, co-founder of Onevest, in a March 2018 article for Forbes.com.

These are just two of the most common types of business valuation methods, though there are many more, and combinations of methods ultimately tend to be the most effective. Regardless of the methods you adopt in the end, remember that the most important step of successfully selling your business is to start by hiring a professional.