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How to ensure you can pay expected business costs
What’s your strategy to avoid running out of cash to fund your operations?
To ensure your business has the cash it needs to fund its ongoing operations, you need a budget. Every business owner (small, medium, large or enterprise) must budget for planned (or anticipated) expenses.
Budgeting allows you to set aside the funds that you need to pay for things like staff bonuses (if that’s something your company offers), capital expenditures (maybe you need to buy new equipment), tax payments (something you can’t afford not to pay), recurring business expenses (monthly rent, connectivity, marketing costs), etc.
Scheduled business expenditure is an important consideration, and you need to strategise around how to preserve funds for these costs to ensure your company’s sustainability.
What you should budget for
Every business will be different, but there are planned expenses that all businesses must accommodate.
With a sound budget, you can plan for small or big expenses appropriately. According to Brian Beers at Investopedia, estimating and matching your expenses to revenue in a budget (real or anticipated) is important because it helps you determine whether you have enough money to fund operations, expand and generate income.
‘Without a budget or a plan, a business runs the risk of spending more money than it is taking in, or conversely, not spending enough money to grow the business and compete,’ Beers says.
6 expenses that most business budgets must plan to cover
1. Bond, rent or lease Every business needs a location to operate from, and while remote and hybrid business operations are the future of doing business thanks to digital workplaces, you will have to pay for your business location.
2. Utilities and connectivity Internet connections don’t come free, and you need internet access to run a competitive business. But don’t forget phones, software licences, and rental costs if you’re hiring technology. Make a list of these costs using a spreadsheet or similar tool to get a full picture of the anticipated costs you will need to cover each month.
3. Vehicles or transport Depending on the type of business you own, you might have to budget for vehicles and transport.
4. Tax commitments If you’re generating enough revenue to be liable for business taxes, you need a strategy to preserve funds for these anticipated costs. Not paying business taxes on time can lead to penalties and reputational damage for your company.
5. Staff bonus and incentives Your company might offer a 13th cheque, an annual bonus, or incentives based on achieving revenue targets. Regardless of how you reward your employees, you’ll need to plan for these expenses and put money away to make these payments.
6. Ad hoc emergency funds As we’ve learnt over the past 3 years, you will never know when a pandemic might strike, or a war might break out. Access to cash during times as challenging as those the world has experienced recently will put you in a better place to make agile business decisions.
Investment solutions for anticipated business expenses
1. Open a call account specifically for anticipated expenses
While it might be tempting to operate with a single business banking account to streamline operations and reduce complexity, keeping excess money in your current or business transactional account can be risky.
You could consider opening a call account that gives you access to the money when you need it. A call account from Nedbank can provide you with a competitive interest rate and allow you to access the funds quickly.
2. Consider a fixed-term account with partial access to funds
Depending on the size of your business and the amount of revenue you generate, you can opt for one or even several solutions that provide attractive interest rates. You can choose to put a larger chunk of money into a hybrid investment that gives you access to some of the funds immediately.
Nedbank offers you a Stable Investment Deposit option or a Nedbank Deposit Note investment option. We also offer a Cashflow Optimiser investment solution, which is ideal if you want to put money away without having to wait long periods to access it to make payments.
3. If you want to enjoy a greater return on investment
Let’s say you’ve opened a call account or a Cashflow Optimiser that gives you access to your funds after shorter notice periods. But you also want to lock in some funds for a longer period with higher returns. You can do this with a notice deposit. Nedbank can assist you with a flexible notice deposit account.
If you put money into the notice deposit account, you will have to give either 7 or 32 days’ notice before you can access it. It’s ideal, if you take a long-term view, to invest in this solution for capital expenditure or staff bonuses or incentives. A notice deposit allows you to add money to it if you want to increase your investment.
4. If you want to lock funds away for a specific business purpose
A term deposit can help you put a lump sum of money away to earn the most competitive interest returns – but you can’t call on this money for the duration of your investment term. It’s locked in for the term you agree to – from one month up to 12 months.
Nedbank’s term deposit offering is ideal if you want to lock in a large lump sum. You can leave the money in the account and let it attract interest and have peace of mind knowing that this money can’t be accessed for the duration of the investment term, reducing the risk of calling on it and spending it on ad hoc expenses that might arise.
We can help you pick the right investment for your business
Planning for anticipated business expenses can be challenging, as you can’t tell what the economy is going to do or what the market might dictate. But putting money away can help you mitigate the risks of not having access to cash when you need to make these payments.
Speak with one of our representatives about investment solutions to help you put money away for business sustainability. And remember, you must start with an accurate budget, listing all your potential expenses to ensure your company doesn’t run out of cash when it needs it.
Solutions to help your cash flow for anticipated business expenses
Type of investment |
How it works |
|---|---|
A call account is ideal if you want your business to earn competitive interest while having immediate access to and full control of the funds in the account. |
|
Deposit funds for a set period, depending on your unique requirements, while having access to a portion of the funds at any time with a Cashflow Optimiser investment. The Stable Investment Deposit solution offers a preferential interest rate if you invest for longer periods. A minimum investment amount is required to be invested for at least 6 or 12 months, with variable withdrawal access up to 10% or 20% of the money. A Nedbank Deposit Note is an ideal solution if you have large investment requirements. A promissory note is issued and we guarantee the note and its terms. A Nedbank Deposit Note has a 6-month investment notice term with on-demand variable access. |
|
A notice deposit is an investment account allowing you to benefit from a higher interest rate. You need to give notice of 7 or 32 days to gain access to your funds. This allows you to maximise your interest return and will suit your business if immediate access to funds is not required. |
|
With a term deposit, you can deposit funds for a fixed period, with your capital and interest rate also being fixed throughout the investment term. On maturity a new rate and investment period can be negotiated, allowing you to keep abreast of market changes, which is ideal if you want to invest a lump sum and will not need to access it for a specific period. |
