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Saving advice guide for small business during high inflation

Business & finance

Saving advice guide for small business during high inflation

If you’re a shrewd and innovative business owner, you may have looked at your books and found an abundance of cash in your reserves. Well done! You definitely deserve a pat on the back for it.

It’s probably come in handy too – over the last year or so, you’ve likely felt the pinch of inflation. Inflation is where the value or purchasing power of your money decreases relative to the same time in a given period, say a year or quarter.

According to the RBA inflation in the economy is at 6.1%. For every $100 you’ve saved, you’re paying $106.10 for the same goods you did last year. This can quickly eat away at your savings, especially since the official cash rate is 2.6%p.a.

So, what can you do with your savings and how to protect your nest egg? Prepare for the next phase? Invest? We discuss the best options to protect your savings during this incredible time of high inflation.

Use it to pay off debts

Having cash on hand is good; but it’s not any good to you if you have high levels of debt in the business. If you have good savings, you can save even more in the long run if you use some of it to pay down debts; especially short-term liabilities which may have high and recurring interest – lines of credit or corporate credit cards and the like. Structuring repayments into fortnightly instead of monthly periods can also help – you’ll make an “extra” monthly repayment per year and end up paying less in interest.

Build savings into your operating budget

It works for individuals and families and can work for business – build savings into your operating budget for the month, quarter, or even year. Having goals when it comes to saving money and making it an ongoing process can yield dividends later. For example, you could use it to fund expansion or seize new opportunities.

Open a business savings account

The process of saving needs a savings account; and a high-interest savings account that incentivises regular deposits are always great for business. Some might even reward your business with bonus interest if you keep the money in the account without touching it. Make sure to look for low-fee or fee-free accounts if possible, so you keep as much as possible in savings.

Use a term deposit

A safe, steady, and effective way to earn interest on your savings is to use a term deposit. A term deposit is a lump sum of money that you invest into a bank for a set period, known as the term. They are known as an investment product, except that your returns are guaranteed instead of speculative. Your bank or financial institution will set an agreed return rate per annum (year.) Interest can be paid at intervals of your choosing and re-invested into the deposit (compounding) or into a bank account.

You may not encounter any fees unless you need to access the deposit before the term is up. Better yet, the government guarantees up to $250,000 in the deposit making it one of the lowest risk investments available.

Remember to ask your financial adviser about term deposits before making a decision.

For more information visit savvy.com.au

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