The $100 MBA Show: MBA2491 Why Every Business Needs a Savings Account

Host: Omar Zenhom
Release Date: July 8, 2024

Omar Zenhom delves into the critical importance of maintaining a savings account for your business in the episode titled "Why Every Business Needs a Savings Account." Drawing from over two decades of entrepreneurial experience, Omar provides actionable strategies to enhance your business's financial health, emphasizing simplicity and practicality for business owners who may not have a financial background.

Introduction to Business Savings Accounts

Omar begins by highlighting the common practice among businesses of opening a checking or current account to handle daily transactions and revenue. However, he underscores that establishing a separate savings account is equally, if not more, vital for the long-term security and growth of the business.

“This is one of those things that once you do it, it's kind of done. You don't have to do it again, you don't have to think about it again.”
— Omar Zenhom [01:30]

1. Enhancing Financial Security

The foremost advantage of a business savings account is security. Omar shares a harrowing personal experience where his checking account was compromised just before payroll, leading to immense stress and financial uncertainty.

“I started doing this really late in the game. Took me nearly a decade to realize how the small move of creating a savings account for my business can make a huge difference.”
— Omar Zenhom [02:15]

By segregating funds, a savings account serves as a protective barrier against potential fraud or unauthorized access that often targets checking accounts linked to debit cards. Savings accounts typically lack linked debit cards, reducing the vulnerability to online hacking attempts.

2. Budget Management and Financial Discipline

A business savings account enforces budget discipline. Omar explains that by determining how much money is necessary to cover monthly expenses (e.g., payroll, bills), businesses can transfer surplus funds to the savings account. This practice not only safeguards excess revenue but also fosters a conscious spending habit.

“This kind of forces you to stay within your budget or at least be conscious of the fact that, hey, I got more expenses or I added an expense.”
— Omar Zenhom [04:10]

By maintaining a predetermined balance in the checking account, businesses are less likely to overspend, ensuring that operational costs are consistently met without dipping into surplus funds.

3. Building a Rainy Day Fund

Establishing a rainy day fund is another pivotal benefit discussed. Unexpected challenges—such as equipment failures, delayed client payments, or economic downturns—can jeopardize a business's stability. A dedicated savings account provides a financial cushion to navigate these uncertainties without resorting to high-interest loans or emergency funding.

“Having that buffer account allows you to handle these challenges without breaking a sweat, without stressing out.”
— Omar Zenhom [06:05]

4. Capitalizing on Opportunities

Beyond safeguarding against risks, a business savings account positions companies to seize opportunities as they arise. Whether it's acquiring a competitor, expanding into a new market, or launching a fresh product line, having readily available funds accelerates decision-making and execution.

Omar shares insights from his tenure at Webinar Ninja, where having a substantial savings reserve enabled strategic acquisitions that bolstered the company's market position.

“Sometimes it's better to buy out a company that does something really well than to build out that feature yourself.”
— Omar Zenhom [07:45]

5. Determining the Right Savings Amount

Omar advises businesses to aim for a savings buffer equivalent to three to six months of operating expenses. For instance, if a business incurs $10,000 monthly expenses, maintaining a savings reserve between $30,000 and $60,000 is prudent. This benchmark ensures that the business can sustain operations during lean periods without immediate revenue streams.

“A good rule of thumb is to aim for three to six months worth of operating expenses.”
— Omar Zenhom [09:05]

He also encourages starting with manageable savings increments, such as allocating 5-10% of monthly profits to gradually build up the savings account without straining the business's finances.

6. Practical Steps to Open a Business Savings Account

Omar provides a step-by-step guide for establishing a business savings account:

1. Integrate with Existing Banking: When setting up your checking account, simultaneously request a savings account, preferably within the same bank to streamline transfers.

2. Avoid Linked Debit Cards: Choose a savings account without an associated debit card to enhance security.

3. Negotiate Terms: Visiting a bank branch in person can offer opportunities to negotiate better interest rates, especially when depositing significant amounts ($50,000 and above).

4. Leverage Technology: Omar emphasizes the importance of selecting a bank with a robust and user-friendly mobile app, facilitating easy management of funds and transfers.

“One of the things you should consider is their mobile app... you're going to be in this app a lot.”
— Omar Zenhom [10:20]

Conclusion

In wrapping up, Omar reiterates that a business savings account is not merely a financial tool but a strategic asset that can significantly influence a company's resilience and growth trajectory. By implementing the practices discussed, business owners can ensure their enterprises are well-equipped to handle both foreseeable challenges and emergent opportunities.

“Having a savings account can be a really huge benefit to making sure your business can expand, growing, be ready for a rainy day, but also to be protected from scammers. Your future self will thank you.”
— Omar Zenhom [11:30]

Omar concludes by reminding listeners to consult with financial professionals to tailor these strategies to their specific business needs, emphasizing that his guidance stems from personal experience rather than formal financial expertise.

Key Takeaways:

• Security: Protects excess funds from fraud by segregating them from the primary checking account.
• Budget Discipline: Encourages maintaining operational expenses without dipping into surplus revenue.
• Rainy Day Fund: Provides a financial cushion for unforeseen challenges.
• Opportunity Capitalization: Enables swift action on business growth opportunities.
• Strategic Savings Amount: Aim for three to six months of operating expenses.
• Practical Implementation: Integrate with existing banking, avoid linked debit cards, negotiate terms, and prioritize a strong mobile banking experience.

By adopting these strategies, businesses can fortify their financial foundation, ensuring sustainability and agility in a dynamic market landscape.