By BRENT MARTIN
St. Joseph Post
A business consultant says too many small businesses have too little savings.
Regional Director Rebecca Lobina with the Northwest Missouri State University Small Business Development Center says the top reason for small businesses to have a savings account is for a rainy day.
“For emergencies that come up that are just unforeseen. So, that could be anything from, well, an ice storm that ruins your roof and that wasn’t expected to happen for another decade, right?” Lobina says with a chuckle on a recent KFEQ Hotline. “Things like that. So, you just have to have that money in place.”
Lobina says other reasons include saving for large purchases. She suggests making the federal tax code work in your favor by using the depreciation tax credit to leverage the financing of large purchases.
Another reason to save is to prepare for expansion.
“That’s one of the big questions I get. How do I know when am I ready to add another employee or my first employee?” Lobina says. “Well, one of the things that you should be doing is saving along the way and if you’re able to save, that in and of itself is a good sign that you can hire an employee, but it also gives you this bank of money so that you can pay that employee.”
Lobina says savings can help meet the payroll while sales catch up with the expansion. She says she has been surprised by how many businesses operate without a savings account. Lobina says the economic downturn triggered by the coronavirus pandemic brought that point painfully home for many small business owners as they found it difficult to survive the government-imposed shutdown, if they survived it at all.
Lobina says the rule of thumb is for a small business to save about 20% of its net profits.