How much money to keep in business account?

[Wantinglegaladvice]

Currently sat on 25-30k and hate (and I mean hate) to see the figure drop on advertising, making the business grow, office rent, expenses etc

How much is wise to keep in. Am I an idiot hoarding money?

 

[Annoying Donkey]

How much do you need to survive a year if say, a pandemic occurred....?

Put your reserves in a deposit account.

 

[japancool]

Money sitting in a business account ain't doing anything.

Even in a deposit account, it ain't doing much these days.

 

[AllUpHere]

Depends on the business. It's not a lot of money to have in a business account for most types of business.

 

[japancool]

Depends on the business. It's not a lot of money to have in a business account for most types of business.

True. Depends on the size of the business, I suppose.

 

[DontAsk]

How much is wise to keep in.

As much as you need. It's impossible to say anything more meaningful without knowing more about the business.

Am I an idiot hoarding money?

Yes.

 

[AllUpHere]

True. Depends on the size of the business, I suppose.

Not just the size, but type too. A lot of businesses need more than that in basic working capital, just so that they can work. If you have a few staff, or need materials to complete jobs, 30 grand isn't going to get you very far.

 

[Wantinglegaladvice]

Not just the size, but type too. A lot of businesses need more than that in basic working capital, just so that they can work. If you have a few staff, or need materials to complete jobs, 30 grand isn't going to get you very far.

We’re a digital agency. Not many overheads…

outgoings around 2k per month…

 

[Alan]

What are your goals? What is your business pan?

 

[MikeJ]

If you don't have a pension, get that started with the money.

 

[Mark T Jones]

The answer of course is entirely dependent on you, and what else you can do with the money.

You could stick it in Bitcoin and pray that it continues to rise.

You could invest in marketing, assuming that you have a clear, coherent and proven strategy.

You could borrow ot & buy premium bonds on the off-chance you get a decent win.

Although, of course @MikeJ 's answer is eminently sensible.

 

[The Byre]

Inflation will increase, as the US and UK economies are addicted to QE. We are already seeing a flight of money into assets (stocks, bonds, commodities, property) and the artificially low (effectively significant MINUS) interest rates have lead to record debt, corporate, private and government debt. There can be no raising of interest rates, as that would crash the economy - so more inflation in a stagnating economy.

So if you can, make that money work for you. I am in a very similar position and I cannot spend my money fast enough - quite literally! I am buying equipment now that I may need in the future. And not just for the business (and therefore tax-deductible and VAT reclaimed). Private stuff for the grounds that I know will last.

If you do not need anything for the business, put the money into assets that do not run away. Property, gold, stuff like that. If there is a market correction (and according to legendary investor and economist J.Grantham we are in one of the deepest market bubbles in history) if the stock markets correct and go down by 50% (and houses may do the same BTW) that would be a good time to buy some value stocks in companies with low debt, heavy investment and market share of emerging economies and making a steady profit.

Typical is a company like Franklin Electric (FELE on the NASDAQ). They make motors for moving water, oil, sewage, etc. and sell vast amounts to third world countries. That would be my pension plan!

But stay away from off-the-shelf pension plans! Many of them just buy index funds and charge you for the privilege! If you want a good long-term strategy, divide the money into three or for packages and buy some value index, some emerging markets index and maybe some commodities index. Uranium looks mighty tasty right now! Stay away from tech and cryptos and any other brass-ring, jam-tomorrow rubbish!

But wait for the bubble to burst! Good stocks will have to be sold off to cover positions in bad stocks!

 

[agentx]

I

Inflation will increase, as the US and UK economies are addicted to QE. We are already seeing a flight of money into assets (stocks, bonds, commodities, property) and the artificially low (effectively significant MINUS) interest rates have lead to record debt, corporate, private and government debt. There can be no raising of interest rates, as that would crash the economy - so more inflation in a stagnating economy.

So if you can, make that money work for you. I am in a very similar position and I cannot spend my money fast enough - quite literally! I am buying equipment now that I may need in the future. And not just for the business (and therefore tax-deductible and VAT reclaimed). Private stuff for the grounds that I know will last.

If you do not need anything for the business, put the money into assets that do not run away. Property, gold, stuff like that. If there is a market correction (and according to legendary investor and economist J.Grantham we are in one of the deepest market bubbles in history) if the stock markets correct and go down by 50% (and houses may do the same BTW) that would be a good time to buy some value stocks in companies with low debt, heavy investment and market share of emerging economies and making a steady profit.

Typical is a company like Franklin Electric (FELE on the NASDAQ). They make motors for moving water, oil, sewage, etc. and sell vast amounts to third world countries. That would be my pension plan!

But stay away from off-the-shelf pension plans! Many of them just buy index funds and charge you for the privilege! If you want a good long-term strategy, divide the money into three or for packages and buy some value index, some emerging markets index and maybe some commodities index. Uranium looks mighty tasty right now! Stay away from tech and cryptos and any other brass-ring, jam-tomorrow rubbish!

But wait for the bubble to burst! Good stocks will have to be sold off to cover positions in bad stocks!

I’m no expert but my Sipp allows me autonomy on my investments (I hold a mixture of individual shares and also managed funds (check out returns on Scottish mortgage fund and legal and general global tech index, blue whale,, etc. there are many more)

Every hundred pounds I put in the government gives me £25 on top. Will you get this outside of an off the shelf pension plan?
Everyone should take advantage of this, use a pension provider allowing access to a wide range of successful funds. The fees are minuscule against gains of 10-20% a year.

Also consider purchase of a BTL property. 25% down - interest only mortgage, achieve a growing income plus capital growth.

 

[SillyBill]

We generally target having enough cash to carry the business for 6 weeks (paying all bills and creditors) assuming no income. Of course as debtor payments always continually landing that makes for a very comfortable cashflow and gives more than enough working capital to do whatever we need to without worrying about payments being made on time. We've kept much more in before now as profits accumulated but now it is trimmed down to roughly this yardstick (not particularly actively managed); invested back in fairly quickly or taken out.

 

[Rekkovitch]

I keep around 2k in the business current account and each month a take 30% of the turnover irrespective of what expenditure/ allowances we can take and put it into a separate account to pay my tax bill. I have no idea whether this will be bang on or too much / too less but as we are floating around the 78-82k for this year ( all being well ) it seems logical. We don't offer any credit , payment is upfront so 2k covers worst case stuff like the van repair etc.

 

[NEF]

I'm currently sat on a decent amount in my business current account, apart from investing in more product stock, any suggestions on stable investment or growth options..

 

[NEF]

.

 

[Deleted member 335660]

Stick some in Premium Bonds. It safe, can be quickly cashed and you may win a million.

 

[BustersDogs]

My mum has had premium bonds for decades, at least 30 years, probably more. Half of that time the max amount and she gets about £50 a month from them. Would like a million please!

 

[Mark T Jones]

I'm currently sat on a decent amount in my business current account, apart from investing in more product stock, any suggestions on stable investment or growth options..

Have you read the thread?

 

[Mark T Jones]

Stick some in Premium Bonds. It safe, can be quickly cashed and you may win a million.

That's my current home for cash.

We joke about the million - but it is strangely satisfying to see the stream of £25s coming in

 

[Deleted member 335660]

My mum has had premium bonds for decades, at least 30 years, probably more. Half of that time the max amount and she gets about £50 a month from them. Would like a million please!

Yes my Dad gave me one in 1958 as a present. Even by 2016 it had never one a penny. I complained to the office that I thought it was random, how come people with 50K kept winning. Then I put 50k in and did win about a £800 a year, which was better than the bank. Now have none.

 

[Gettingthereslowly]

Premium Bonds are fine if you are not a limited company.........if you're limited company, then you have to 'extract' the money personally (tax considerations).....which more or less rule out premium bonds for limtied co's.

It is a nice predicament to have - surplus cash.

Obvious ones (in no particular order)....and all have pro's and cons's
Deposit Account
Desposit Account, with a plan in place to pounce if an opportunity comes up
Repay loans/finace early
Bulk buy stock
Pension contributions
Buy own premises
Invest in 'General Investment Account' in company's name/stockmarket investments
Buy residentail Buy to Let premises
Buy other commercial premises not connected to your business i.e. diversify your risk

Or combination of above.

 

[ChrisGoodfellow]

We’re a digital agency. Not many overheads…

outgoings around 2k per month…

It's helpful to think about how many months "runway" you want to keep. This is the amount of time your business could keep running if you didn't win any more business/ get any more cash in. It's unlikely business will drop off completely overnight (although recent history has shown it does happen), but this period gives you time to react to a downturn.

I keep six months runway based on cash in the bank and work we have on contract. I know other agency owners that only keep three months worth because they invest in growth more aggressively.

If you're not interest in investing in growing, then you need to ask, where is the best place for the money? Is it better to draw it down and invest it rather than accumulating a meagre interest in your business account (as other people have suggested on the thread)?

 

[NEF]

Well one step is we are going to buy a business premises... Our company operates online only, as it is, we do not desperately need the premises to be honest, but the extra space and physical front will come in handy, and there is potential for the property to increase in value..

 

[RayanW]

Why dont you invest them?

 

[MikeJ]

Well one step is we are going to buy a business premises... Our company operates online only, as it is, we do not desperately need the premises to be honest, but the extra space and physical front will come in handy, and there is potential for the property to increase in value..

If you're going to do that, then look at putting the money into a pension, and having the pension fund purchase the property. Good tax reasons for doing this, and if something major happens the property is protected.

Talk to an IFA.

 

[PaulSmt]

Thank you for the article. At the moment, such articles are at the top of my reading list because I've recently moved to live on my own. Now I need to learn financial literacy, and reading such articles is one way to do that. I also regularly read about money management and investing on https://www.doughroller.net/. It's so good that we live in the age of the Internet, and it's not necessary to ask for advice from specialists or parents about finances.