Starting a business takes guts, determination, and a good chunk of cash. Initially that money usually comes straight out of your pocket or from funds you’ve borrowed from friends, family, or your financial institution.
If you are wise, however, you’ll be looking to establish your business's own cash reserves to make it a sustainable enterprise and insulate your company from tough times ahead. But that’s easier said than done. Without an established revenue base or predictable cash flows, it’s hard to know how much money to set aside.
Keep reading to learn about the difficulties of setting up and sustaining a small business and the strains it can put on your finances. We’ll also list some signs that might suggest your business savings are too low.
HOW MUCH SHOULD I SAVE?
Many experts say you should have the equivalent of at least 3-6 months’ business expenses stashed away for emergencies and unforeseen expenses. That might seem out of reach if you are just starting out, but it’s worth aiming for.
In the meantime, take the time to understand how much your business costs to run by reviewing receipts, expense reports, and budgets. You’ll want to have an average monthly cost, so you’ll need to look at several months’ outlay to get a realistic figure.
WHEN HAVE I SAVED ENOUGH?
The best answer might be never, but an honest answer is when you can sustainably cover emergencies and unexpected expenses. Ideally, your contributions within a few months should be able to replenish any outflows. In other words, the amount in your savings account should be relatively steady when looked at over 1-3 months.
In reality, a lot also has to do with your goals for your business. If you plan to start small, find a niche in the market, and grow sustainably over a long period, then it makes sense to prioritize savings over rapid expansion. This allows you to build deep reserves to fund long-term expansion and tide you through the tough times.
However, if your strategy is to grow quickly to take advantage of a unique opportunity or to grab market share, then you are going to need more cash to find that rapid expansion. While saving is always good, you will likely want to prioritize investments to grow your businesses as quickly as possible and look to consolidate savings later.
RISK TOLERANCE
Every business and business owner has a unique tolerance for risk. While some are comfortable operating with lean savings, others prefer a more cautious approach. High-risk entrepreneurs are often willing to gamble on avoiding unexpected costs and don’t mind being out of pocket for longer periods.
Other owners will prioritize savings as a key part of their company’s sustainability and will work extra hard to save the recommended reserves to bolster their business against emergencies or the unexpected. These risk-averse owners want to have all the reserves they need to fall back on before they look to expand their operations or seek out new markets.
10 SIGNS YOUR BUSINESS SAVINGS ARE TOO LOW
Whatever your business goals or risk tolerance, there are clear warning signs that your business savings are not what they should be, spelling trouble for your company ahead.
1. STRUGGLING TO COVER UNEXPECTED EXPENSES
If a sudden repair, equipment failure, or emergency expense strains your finances, your savings cushion might be too thin. Healthy savings should be able to absorb most of these shocks without disruption to your operations.
2. DEPENDENCE ON CREDIT FOR DAILY OPERATIONS
Relying on credit cards or loans to handle routine expenses is a big red flag. Your business savings should cover variations in day-to-day spending as needed without resorting to frequent borrowing.
3. INCONSISTENT PAYROLL MANAGEMENT
If just meeting your payroll feels like a juggling act each month, then your savings aren’t enough. Employee wages should never be put at risk due to cash flow gaps, even with the most aggressive business plans.
4. DELAYED GROWTH OPPORTUNITIES
If you're missing opportunities to grow—like securing new inventory, expanding services, hiring talent, or forming partnerships—because of limited funds, it may be time to bolster your savings.
5. HIGH STRESS ABOUT CASH FLOW
Trust your gut. If you are constantly worrying about your cash flow then it’s likely you have insufficient financial reserves. A healthy savings buffer for your business provides peace of mind during slow periods.
6. INABILITY TO HANDLE SEASONAL FLUCTUATIONS
Many businesses are seasonal, experiencing much of their demand only during certain months of the year. These businesses need especially robust reserves. If your business struggles to cover expenses during off-peak seasons, your savings aren’t strong enough.
7. MINIMAL INVESTMENT IN FUTURE PROJECTS
A lack of savings may affect your ability to make necessary investments in technology, marketing, or infrastructure. This could end up stalling your business’s capacity for long-term growth, even with the most conservative expansion plans.
8. NO EMERGENCY FUND PLAN
Every business should have a minimal savings fund for emergencies equivalent to 3-6 months of typical business expenses. Without these savings, your business is at risk of being knocked off course even by relatively minor financial shocks or unexpected events.
9. VENDOR OR SUPPLIER PAYMENT DELAYS
If you can’t make payments to your vendors or suppliers on time, this is a clear sign your business savings are too low. This is serious as it can affect your business relationships and creditworthiness.
10. LACK OF A PERSONAL FINANCIAL SAFETY NET
If your business savings are not enough to allow you to pay yourself during slow periods, then you have a problem. You shouldn’t have to rely directly on your business income to ensure your personal financial security.
If any of these telltale signs of financial stress apply to your business, then it’s time to do something about your cash reserves – quickly.
STRATEGIES FOR BUILDING BUSINESS SAVINGS
Your cash reserves need to be separate from your day-to-day business dealings and personal finances, but still quickly accessible in the event of an emergency. Here are three critical steps to building a sustainable savings nest egg for your business.
1. SEPARATE
Start by saving whatever you can, even small amounts. The goal is to build a habit of saving as part of your business finances and to see how savings grow over time. Aim to save three months of expenses, then four, five, and eventually six. This will establish a basic emergency fund for your business.
The first step is to separate your business savings from your everyday earnings and outlays. A Business Share Savings Account is ideal for this, requiring only $5 to open and maintain, and keeping your money instantly accessible.
You can also add different Budgeter Savings Accounts within this to earmark savings for particular things, such as emergencies, taxes, Christmas bonuses, etc.
2. STEP UP
Got your emergency fund in place? Good! Now look to grow what you have while continuing to add savings as your business expands.
Now is a good time to step up to a money market account. Money Market Accounts pay higher dividends, allowing your money to grow while keeping it instantly available in the same way as with a regular savings account. You may need a higher opening balance to open a money market account, but its tiered rate structure means you will earn more as your savings nest egg passes certain thresholds.
3. DIVERSIFY
Satisfied you’re saving enough to cover upcoming obligations like taxes or bonuses? Then it’s time to diversify into longer-term savings products that will allow you to build significant capital over time.
Business Certificate Accounts allow your money to grow at higher rates by investing for a specified term, usually from three months to up to five years. While your money will not be available to you during this time, it grows virtually risk-free until maturity, when you are paid out the full amount plus your earnings.
Certificates are a safe and reliable way to turn your extra cash into a valuable asset and should be part of your business’s diversified savings plan.
Credit unions can offer many types of certificates. For instance, a Flex Certificates let you deposit money whenever you have funds available, and withdraw it during a three-day window at the start of each quarter. It’s a great option for building long-term savings without compromising on flexibility.
A Dedicated Saver Certificate is the perfect way to save ahead for pre-planned expenses like taxes, bonuses, insurance and loan payments, and more.
Dedicated Saver Certificates require a direct deposit or payroll deduction of just $10 a month, plus you are welcome to make an additional monthly deposit of up to $10,000. Dedicated Saver Certificates offer a structured approach to maximize your savings for specific goals.
By separating, stepping up, and diversifying your savings, you’ll be able to turn small amounts of excess cash into the funds you need to absorb unexpected shocks and build for your business’s long-term future.
BUILD A STRONGER FINANCIAL FUTURE FOR YOUR BUSINESS
Ready to build a more stable and sustainable foundation for your business? Wasatch Peaks Credit Union has the business savings products you need to smooth out the bumps on your business journey and plan for the challenges ahead.
At Wasatch Peaks, we’ve been supporting businesses in Davis, Weber, and Morgan counties for years, and we understand the challenges local companies face at every stage of their journey. That’s why we offer a range of tailored savings, money market, and certificate products to make it easier for your enterprise to reach the next level of success and stability.
