7 Steps to Funding Future Growth

As a small business owner, you know growth is critical to success. Whether you're expanding operations, investing in new equipment or hiring staff, growth takes one key thing: money. One of the most effective ways to fund future growth is by building a solid financial foundation through a Business Savings Account.

Using your savings wisely allows you to finance expansion plans without being too dependent on Business Loans. This guide will show you how to strategically use your Business Savings Account to achieve your growth goals, maintain financial stability, and increase your business’s flexibility.

1. Setting Clear Financial Goals

Before diving into how you can use business savings for growth, define your financial goals. This will help you to develop a clear roadmap.

First, determine where you want to grow. Do you need to purchase new machinery, expand your workforce or increase your marketing efforts? Every goal requires a different financial approach, so it’s important to identify what your business needs.

Once you've identified your growth areas, align them with your savings strategy. For example, if you plan to expand operations in the next year, start setting aside funds now. For example, if you’re a manufacturing business and know you'll need new equipment within the next two years, set aside a fraction of your monthly revenue now. You can then build up the savings needed to make that purchase without debt.

2. Choosing the Right Business Savings Account

Choosing the right savings account could be critical to your growth planning. Different accounts offer different benefits, so selecting one that aligns with your financial goals is crucial.

In the UK, there are several types of Business Savings Accounts to consider:

• Easy Access Accounts: These accounts allow you to withdraw funds anytime, making them ideal for short-term goals or those without a long-term savings plan.

• Notice Accounts: These accounts require you to give notice before withdrawing funds, typically offering higher interest rates as a trade-off.

• Fixed Term Accounts: These accounts lock in your money for a specified period, typically offering the best interest rates but restricting access.

For short-term growth goals, such as funding a marketing campaign or hiring temp staff, consider using an Easy Access Savings Account. This gives you flexibility while keeping your funds immediately accessible.

A Fixed Term Account may be a better choice for long-term investments, such as purchasing new office space or expanding your product line. These accounts typically offer high returns on your savings.

Take time to research the interest rates offered by different savings accounts. Even slight differences in rates can significantly impact your savings over time. Look for accounts that offer competitive interest rates without hidden fees, and consider switching accounts if better rates become available.

3. Balancing Savings with Cash Flow

While saving for growth is valuable, you should maintain enough liquidity to keep your day-to-day operations running smoothly. Finding the right balance between savings and cash flow is critical.

Ensure you keep some cash available for operational expenses, such as paying suppliers, wages or unexpected costs. You don’t want to tie up all your finances in savings accounts and find yourself short when you need it most.

A good rule of thumb is to keep enough money in your savings account to cover 3-6 months’ operating expenses. This will give you a financial buffer in emergencies or unforeseen challenges. Widespread business disruption during the COVID-19 lockdowns in the UK is a good example of this.

You can strike the right balance by splitting up your money. Consider keeping a percentage in an accessible account for operational reserves while putting longer-term savings into a fixed-term or Notice Account where they can earn more interest.

4. Building a Growth Reserve

The next step is determining how much you need to save. This depends on your specific growth goals and the costs associated with them.

Begin by calculating the cost of the investment you’re planning. For example, if you’re saving for new equipment, research the retail price and any additional fees like delivery, installation and maintenance. Once you know the total, set a savings target.

A common approach is to save a percentage of your monthly revenue for future growth. Saving 5-10% is a good starting point for many small businesses. You can build up a healthy reserve over time by consistently setting aside a portion of your income.

While borrowing often makes sense for significant investments, using your savings to fund growth allows you to avoid the costs of interest and repayments. When possible, self-funding your growth through savings is a cost-effective solution.

5. Automating Savings for Ease

Consistency is key when it comes to building savings. Automating your savings can help you stay on track without the need to remember to transfer funds.

You can set up regular, automatic transfers from your business current account to your savings account. Doing this ensures that a fraction of your revenue consistently goes towards growth without any effort.

Even with automated savings, you should still review your progress regularly. Check how close you are to your savings goals every couple of months and whether your current strategy is working. If your business grows faster than expected, you may want to step up your savings contributions.

6. Planning for Significant Investments

Once you’ve built up a sizeable balance in your savings account, you’ll need to decide how and when to use those funds for growth.

Use your savings when the investment is essential for future business success. This could include:

• Purchasing new equipment or technology

• Expanding into new markets or opening a new location

• Hiring staff to support increased demand

While using savings to fund growth can be a great strategy, manage risk carefully. Always leave enough savings to cover unforeseen costs or downturns in business. Avoid draining your savings account entirely, even for necessary investments.

After funding a growth initiative, continue building your savings by reinvesting the profits. This approach allows you to self-fund future growth, creating a sustainable long-term model.

7. The Role of Business Savings in Attracting Investment

Strong business savings don’t just help to fund growth; they can also make your business more attractive to investors and lenders.

Potential investors and lenders look for companies with solid financial management practices. By showing a strong savings balance, you demonstrate that your business is financially healthy and can manage its resources effectively.

You can also use your savings to attract external funding. For example, if you have saved enough to part-fund a significant project, it becomes easier to secure additional financing to cover the remainder.

Building a Strong Foundation for Growth

By setting clear goals, choosing the right savings account and regularly reviewing your strategy, you can use your business savings to fuel future growth. A carefully thought-out savings plan funds expansion and strengthens your business’s financial stability, making it more resilient.

Start building your business savings today, and you’ll create a solid foundation to support your company’s growth. Ready to take the next step? Compare Business Savings Accounts from our trusted partners.

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