How wet does it need to get?

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We all like to think that squirreling a bit of money away for a rainy day can lead to contentment, security and peace of mind and in the main that’s true. Business owners in particular feel like cash in the bank offers additional security and leaves them with a feeling that, if something was to happen, they would be a bit more financially safe. Although, I can’t disagree with that, hoarding excessive cash away in your business can be incredibly inefficient – when it comes to rainy days, even Noah only had to deal with 40 of them.

Yes, there is always the comfort of something to fall back on if times get a little tough, but the negatives of holding too much collateral far outweigh the positives. Firstly, your business current account is unlikely to be paying you any interest, whereas a business savings account currently pays as much as 4%, switching things up or simply just moving them around can be hugely beneficial. Secondly, it’s incredibly tax inefficient! Pension contributions are a great way to maximise your business’s tax efficiency. They are removed from the company profits therefore reducing your corporation tax burden, they sit in an Inheritance Tax (IHT) free environment and any growth you make is tax free. Plus, they offer a much broader range of investment options and you can even keep a savings account within your pension, just in case it does decide to pour down.

The issues faced by small businesses and small business owners are vast. Financially speaking, having a strong balance sheet should be a good thing, but there are many ways to make sure that your money can work harder for you. If you would like to take a deeper dive, feel free to get in touch.

A person stands on a beach with an umbrella in the rain.  Text says it doesn't have to just be about rainy day savings

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