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n a recent study, half of all small businesses surveyed reported not having a documented budget. Yet, operating your business without a budget can make it very challenging to set and hit your business’ financial and performance goals. On top of that, you risk hindering your business’ success long-term. 

That’s why we developed Novo Reserves, a feature to help small business owners distribute money appropriately in their business account, so they’re financially prepared for both opportunities and hardships.

Here’s everything you should know about Novo Reserves and how this account feature can benefit your small business.

What Are Novo Reserves? 

Novo Reserves makes it simple for small business owners to set aside a portion of incoming funds for profits and short-term and future business costs. Such expenses could include taxes, rent, payroll, and other financial liabilities.

Think of Novo Reserves like envelopes in a safe. Like the “envelope method” of budgeting that some people may use for their personal finances, the same concept can apply to managing your business's cash flow. 

With Novo Reserves, you can automatically designate a portion of your cash inflow, either predetermined percentages or amounts, to up to 10 specific business purposes or expenditures, or ‘Reserves.’ The next time you view your account balance or withdraw money, it’s easy to see what funds are available for that purpose.

The money doesn’t transfer to another safe or account, nor is there a charge for putting it safely away. As the name suggests, the money is simply reserved. This offers you greater flexibility, predictability, and control when managing your business finances.

What Are the Benefits of Novo Reserves?

Novo Reserves helps small businesses allocate incoming funds for specific purposes. But it’s about more than saving for a rainy day. In fact, there are several benefits small businesses may enjoy when adding Novo Reserves to their accounts, including:

  • Effortless Budgeting: With Novo Reserves, you can quickly check the status of each Reserve on the Novo app or website. In seconds, get a visual of where your finances stand. 
  • Saved Resources: As a business owner, how much of your time have you spent crunching numbers? Novo Reserves help you gain control over your budgeting with a one-click approach to saving.
  • Confident Control: A stack of overdue bills can leave any business owner ill-prepared. But knowing you’re saving for upcoming expenses with Reserves can boost your confidence.
  • Faster Profits: Novo Reserves offers the option to manage your business finances with a “Profit First” budgeting plan. Using the Profit First method, you pay yourself before addressing any expenses. This means you’re focused on becoming profitable as quickly as possible to maximize growth without sacrificing income.

A Deeper Look at How Profit First Accounting Works

Profit First, a finances management strategy discussed in the similarly-titled book by author Mike Michalowicz, is an approach that enables business owners to increase profitability by paying themselves first. 

As a small business owner, you may already be familiar with the Traditional Profit formula:

Sales - Expenses = Profit

Here’s how it works: Jim’s Flower Shop sells $1,000 worth of flowers and spends $975 on operations, supplies, marketing, and employee payroll. Before Jim knows it, most of his funds are gone, and he’s left with just $25 for profits with the Traditional Profit method.

Instead, here’s what could happen if Jim used the Profit First formula:

Sales - Profit = Expenses

With this methodology, Jim prioritizes putting 10% aside for profits first. This encourages him to adjust spending to only what's necessary to run the business and ensures profits aren’t cut short.

So with $1,000 worth of sales and 10% set aside, his business made $100 in profits. Now, Jim knows he has $900 to spend on expenses, and he’ll have an easier time allocating different amounts to his most important needs.  

How Can Profit First Accounting Benefit Your Business?

While tightening a business expense fund when trying to grow may seem counterintuitive, this method can actually help a small business grow faster. 

By setting aside funds for profits at the beginning, you guarantee your business will be profitable from the start. This method also forces you to be more disciplined with your spending and gives you a better idea of your budget.

Profit First accounting also ensures funds are separated and have a purpose from the start. Novo customer Melisa Gage, CPA, and founder of Advanced Accounting Services Inc., says, “one of the biggest mistakes small business owners make is co-mingling all their money together. Keeping your money separated is a simple, peace of mind solution that will keep you better prepared for the expected and unforeseen.”

What Is the Novo Reserves Profit-First Package? 

Novo business checking is ideal for business owners interested in the Profit First method. In fact, our Profit-First Package enables account owners to set up Profit First accounting in just a few clicks. The package includes preset percentages for profits and other Reserve categories. So even if you’re not an expert in the methodology, you can start enjoying the benefits of prioritized profits.

Want to come up with your own automatic Reserve deposit amounts? Our free Profit-First calculator can help you determine the ideal percentage of an account deposit for each Reserve.

How to Set Up Novo Reserves 

Ready to start allocating your funds? You can easily manage multiple budgets with up to 10 Reserves within a single account. Here’s how.

  1. From your account overview screen, select “Reserves” within the left-hand menu.
  2. Once in the Reserves screen, select “Add Reserve” in the top right-hand corner.
  3. Name your Reserve with an appropriate title, such as Profit, Taxes, Operating Expenses, or Rent. Then, add a description, if desired.
  4. Add an initial deposit from your account balance.
  5. And finally, allocate future income by percentage for each Reserve (Our Profit First package includes suggested rates that can be adjusted).

And with just a few clicks, your business is set up for Profit First budgeting with additional Reserves created for the unique expenses that keep your business going and growing.

Budgeting Made Easy

The best small business budgets are simple and flexible. Novo Reserves is both, enabling businesses to allocate funds automatically without giving up the flexibility a small business needs.

Add Novo Reserves to your Novo checking account today, and see how simple business budgeting can be.

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This page is for informational purposes only and is not intended to be relied upon as legal, financial, or accounting advice. Please consult your own professional if you have any questions.

Updated 
October 6, 2022
 in 
Banking 101
 category