It’s World Savings Day on 31 October. You already know the importance of building up a rainy-day fund for your small business. You also know the benefits of creating a savings culture among your team.
In fact, you’ve probably been so inundated with advice about saving money that it’s difficult to know what to implement and what to ignore.
I’ve compiled a few common small business money savings myths and suggested why you should do the exact opposite.
Myth 1: I need to increase my revenue before I save
Saving money every month should be non-negotiable, no matter what your circumstances. If you’re waiting for your turnover to increase to start saving, that day will probably never come. There will always be another excuse – even when you are earning more.
Consider saving a percentage of every invoice, even if it’s a small percentage – you can increase it once you’re used to putting money away every month. Further, the sooner you start saving, the sooner you’ll start earning compound interest, which is basically free money.
Saving should be the first thing you do when you’re paid. Think of it as investing in yourself and your business. Once you’ve paid yourself, pay everything else with what’s left. You might need to revise your budget at first to make it work, but regularly reviewing your finances is always a good thing.
Myth 2: I need to save towards something
Yes, there might be a big-ticket item that you are savings towards, like a delivery vehicle or new shop fittings, but you shouldn’t need a reason to save money. In fact, it’s just as important to save for the unknown and the unexpected.
What would you do, for example, if a fire destroyed your office and you had to pay a massive insurance excess? Where would you get the money from?
What if it’s month-end and you’re still waiting for that large corporate or government entity to pay for services you delivered three months ago? How will you pay your staff and suppliers when you’re having cash flow problems?
Saving money is never a bad idea. Unfortunately, you’ll only realise this when you’re facing a cash crunch and have no safety net.
Myth 3: Banks are my only savings options
Putting your money into a savings account is convenient because you can see it and you can access it whenever you need it. But being able to quickly and easily access your money increases the temptation to make impulse financial decisions (do you really need that new coffee machine just because it’s on sale?)
Another disadvantage of saving money in the bank is that you don’t earn much interest. Putting your money in investment accounts or buying shares, however, produces greater returns, especially for long-term savings. Also, because you can’t see your money, you’ll be less likely to spend it unnecessarily: Out of sight, out of mind.
Myth 4: I can start saving later
It’s true that saving can feel almost like a grudge purchase. It might not be rewarding to save money for an emergency one day. But when that day comes (and it will), you’ll be glad you did. You’ll save yourself the stress of accumulating debt or scrambling to secure finance, which can be especially difficult for small businesses.
Finding excuses not to save money is easy: cash flow is tight; there are additional expenses this month; the aircons are due for a service. Start by setting a financial goal – like saving the equivalent of six months’ revenue – and take small steps towards it.
Myth 5: Putting cash away is the only way to save money
Cutting operational costs in your business is a quick way to free up money that you can invest.
Here are a few ideas:
- Share office space with another small business or adopt a virtual business model, which doesn’t need a physical office, saving you on rent and operational costs.
- Go green – cut down on paper use, switch to energy-saving lightbulbs and appliances, be smart with water, buy refurbished furniture. It all adds up.
- Run your business in the cloud. You can access just about all your business management software in the cloud, which means you don’t need to invest in expensive hardware and the skills to maintain it. Cloud-based accounting solutions also help you manage your inventory, so money isn’t tied up in surplus stock.
- Pay invoices on time to avoid interest and late payment fees. Take advantage of early payment discounts.
- Cut down on meetings so your team can focus on strategic functions. Hold important meetings over Skype or Zoom to save time and money on travelling.
- Outsource ad hoc work, like design and copywriting, to freelancers rather than hiring a full-time resource. Hire interns to do admin work so that you can spend more time on strategic planning.
Money – making it, saving it, sourcing it – is arguably the biggest challenge of running a small business. Start making your money work for you – not just today but in five, 10 and 20 years from now.