Maximizing growth is a key focus of running a business, alongside serving your customers. As your business grows and cash flow increases, it's crucial to put any unused cash to work. Since checking accounts typically don't earn interest, why let that money sit idle when you can make it grow? Here are a few solutions you can implement in your business today.
High-Yield Savings Account
High-yield savings accounts offer a practical solution to this problem. If you have a business checking account, you can often open a savings account at the same bank. However, there are typically even better options available. Traditional brick-and-mortar banks may pay some interest on savings accounts, but online high-yield savings accounts often offer significantly higher rates.
Banks like Ally or Live Oak Bank, for example, tend to provide more competitive interest rates than traditional banks. Setting up a business account to store your cash and earn interest is a simple and quick process. And high-yield savings accounts aren’t just for businesses, you can also open a personal high-yield savings account to make the most of your personal funds.
Business Brokerage Account
Not limited to just individuals, business owners often aren’t aware that they have the ability to establish a brokerage account for their business. That’s right; you have the option to invest that sitting cash and grow it just as you would your personal investments if you choose. Unlike a high-yield savings account, where cash earns a higher interest rate but remains relatively static, a business brokerage account opens the door to a wide range of investment opportunities.
You can invest in stocks, bonds, and ETFs, allowing you to diversify and potentially achieve higher returns over time. This approach can be particularly beneficial if your business has surplus cash that won’t be needed in the short term.
By strategically investing in a business brokerage account, you can grow your capital, hedge against inflation, and even generate passive income through dividends or interest money that can later be reinvested into your business or used to fund long-term goals.
Retirement Accounts
Adding a business retirement plan, such as a 401(k), is another effective way to save money through your business. Unlike a savings or brokerage account, the funds in a 401(k) are designated specifically for retirement and cannot be accessed for business purposes before retirement age. However, a business 401(k) offers significant tax advantages. Contributions made by the business on your behalf are tax-deductible, reducing the company’s taxable income.
For business owners, this allows you to build retirement savings while lowering your overall tax burden. Additionally, depending on the plan structure, you may be able to contribute both as an employee and employer, maximizing your savings potential. It’s an excellent tool for securing your future, while also providing tax benefits to your business in the present.
The Bottom Line
Large sums of idle cash can be a missed opportunity for any business. Whether you're a large company or a sole owner, you have the same chance to put that extra cash to work through investments or business retirement plans. By doing so, you can grow capital, reduce taxes, and improve financial flexibility.
We at Wisely Advised can help build you the best strategies to make your money work harder, aligning with your business goals for long-term growth.
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