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Small Business Set Aside Accounts
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Creating set aside accounts for projected business needs is an essential aspect of managing money in a small business. It is an indication that you, as a small business owner are planning for the future of your business and handling your finances wisely. A set aside account is essentially an account or fund to which you designate a specific purpose.
You make the determination how much and how often you will contribute to your set aside accounts. You can have as many set aside accounts as you have needs. The point is, you build up the funds in each set aside account and use it only for its designated purpose. For example, you can have a set aside accounts designated for specific purchases you wish to make, for future investments, or as a financial cushion to handle unexpected expenses. If you find that you have saved money in a set aside account for a specific reason, but no longer need it, close the account and redefine the purpose for the money that was in the account.
When you are involved in a new business it's easy to spend all your start up funds and initial sales income on items such as licenses, permits, equipment, promotional materials, payroll, packaging and manufacturing or office facilities. You may be aware in the beginning stages of your business that obtaining a particular professional service or a specialized piece of equipment would have a significant impact on your ability to increase production and delivery of your product, but you just don't have the money.
You could consider applying for a business financing and credit, but perhaps you don't yet have a Paydex score for your business and your personal credit is already maxed out. Creating a set aside account is your immediate solution. It is common practice in business to take 10% of profit on sales and use this to finance set aside accounts. Creating set aside accounts for you small business needs gives stability to your business and is a sound step toward handling your business finances effectively. |
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