Canadians’ knack for taking on household debt relative to their savings and income is a major news item, what with debt-to-income ratios sitting at a record 162% as of recent polling. Couple this with a declining savings rate, and a strong argument can be made to show that Canadians need to refocus their priorities on long term economic planning, savings development with major life goals in mind, and the creation of cash buffers with enough depth to protect against financial emergencies. Small business savings practices are becoming more actively invested in the light of these changing trends.
Small businesses also need to turn their attention to saving, according to new data released by the United States Small Business and Entrepreneurship Council. The council found that the average of companies they surveyed would have just 27 days worth of cash reserves to cover expenses if inflows suddenly stopped. As with personal savings, one of the best ways for small businesses to maximize the effect of their savings efforts is to compare the kinds of business banking options on offer.
Why should small businesses savings become a priority? For example, 21% of respondents in a British poll indicated that they’d use the returns from their savings to invest in the infrastructure of their business. Others (17%) said they were accruing cash to fund a major purchase, while 31% wanted to have a ready source of cash available for regular payments. Your business could also be saving money for an upturn in the economy, when it may make more sense to expand.
In our last blog we discussed the negative effects of late payments on small business prosperity – lack of savings planning is the other side of the coin of this issue. Getting your savings plan organized and making it work for you with the best returns on your money depending on your business goals will be critical to ensure continued success.