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Cash Flow

Business Owner Barriers Series Part 3: Prioritize Your Cash Reserves…Or Else

‍Keep Your Company Afloat During Volatile Times

TLDR: Your Cash Reserves will save your business

The economy has been tough on many businesses. It's notalways easy to predict when yours will experience a downturn which makes itchallenging to keep the company afloat when times get rough. 

Changing economicconditions, legislation, or the tax structure might all have an impact onbusiness viability, and it can be frightening - even with a back up plan. 

Avoid a catastrophe using proven treasury managementactivities to manage the cash in your company or organization.

Henry Buckley, a 19th-century politician, once said,"Save a portion of your earnings and start now, for the person with asurplus has control over his circumstances, while the individual who lacks sucha resource is controlled by them."

Ready to learn more?

Manage Your Cash Reserves to Stay Afloat

Savings will cover unexpected expenses, help you avoid risks and manage opportunities.

In case of an economic downturn or when sales dropunexpectedly, your business can rely on saved funds to support operations through lean times. This type of fund prevents a company from being caught off guard without a cash reserve.

How Do I Build A Cash Reserve?

Get started by setting aside 10% of your monthly business profits in a savings account. Including it as part of your business budget is an easy way to work it into your routine.

Here are a few great financial management ideas to help youwhile you build up your fund:

Automate Saving:

Set up an automatic savings plan and contribution to yourrainy-day fund, so you don't have to worry about it.

Open a High-Interest Account:

Building up a sizable amount of cash can take some time, butputting that money into a high-interest savings account will help it growfaster.

Read Financial Management Books:

Books such as “the Personal MBA” help you manage yourcompany’s finances and make sound investment decisions.

How Can I Get Started Immediately?

Business owners should start building their reserves yesterday.Here are three tips for getting started:

Tip 1: Cut Costs

Businesses can save money by cutting costs in a few keyareas. For example, reduce your advertising budget, renegotiate suppliercontracts, or trim staff hours.

Tip 2: Increase Income

You can increase profits and income so that you have a moresignificant chunk to save from. For example, expand into new markets orincrease the prices of existing services and products.

Tip 3: Pay off Unwelcome Debt

If you have unwelcome debt, consider paying off your debtprincipal each month. This will decrease your outgoing funds in the long runand allow you to add more to your cash reserves eventually.

How Much to Have in Your Cash Reserves

In general, a company should have three to six months ofyour opex set aside. However, the specific amount will vary depending on thefollowing factors:

- How much outstanding debt your company has

- How much revenue is generated

- Anticipated business expenses over the next few months

Take each of these factors into account and adjust your reserve fund accordingly.

Don’t let the perfect be the enemy of the good! Whatever funds you can allocate to your cash reserves will be helpful and will help you amass a decent-sized fund in a relatively short amount of time.

What Should I Do if I Use Up My Cash Reserves?

Even if you're diligent about saving and building a reserve fund, what happens if you use it all? You also need a plan for what you'll do if your fund is exhausted.

Some business options to stay afloat during lean times:

- Cutting back on discretionary expenses

- Selling assets or taking out a loan

- Reducing headcount

- Closing down temporarily

Once you're able, start adding money to another backup fund right away. The ultimate goal is to have a plan and the means to act on it whenthe time comes.

What Should I Do if My Business is Struggling?

Read the warning signs. If your business is struggling, thebest thing you can do is reach out for help. There are a variety oforganizations and resources available to assist companies in difficult times.

The Small Business Administration (SBA) is a governmentagency that offers free or low-cost resources to small businesses, includingcounseling and mentorship programs, disaster relief assistance, and loanopportunities.

The SBA also has a helpful website with information on starting a business, growing a business, andmanaging finances.

Don't delay in asking for help when the going gets tough.After all, your business is your livelihood, so keeping it afloat should be apriority in good times and bad!

In Conclusion

Businesses are the mainstay of the economy. They createjobs, drive innovation, and support local communities. But even the strongestbusinesses can run into trouble if they don't have a rainy-day fund to fallback on.

Saving is hard for anyone, but by setting aside a smallamount of money each month, you can build up a fund that will give your companypeace of mind during difficult economic times. A cash reserve is crucial forany small business owner's financial security and ability to seize opportunities.

Follow our advice above to build up a reserve of cash thatwill help you weather any storm, or better yet, come talk with the team atDryrun to manage your present and future finances in a practical and visualway.

See if Dryrun is a fit for you.