How to Build up Your Business Cash Reserves in 5 Simple Steps

It is important you build a cash reserve in order to improve the financial security of your business.

Despite how important this is, a lot of small businesses have little or no reserves at all. According to research carried out by Simply Business and YouGov, many businesses do not have cash reserves that can last more than two weeks, and one in five businesses have no cash reserves at all.

This new discovery has led to growing concerns for many small businesses in the event of unforeseen situations that could stop trading or business operations.

If you want your business to be stable, having a cash reserve is vital. A lot of businesses do not have any savings; thus, their financial security is threatened. If you are interested in building a cash reserve to keep your business secured, here are 5 easy ways to go about it.

1. Improve debt management

Learn to manage your debt better. By efficiently managing your debt, you can ease your finances and build a cash reserve. A good way to go about this is to renegotiate your debt with existing creditors.

Most of your creditors may agree to a longer settlement period; this will reduce your monthly repayment, allowing you to save some money. And if this renegotiation is not acceptable by your creditors, you can take your debt elsewhere where repayment would be flexible, provided you have a good credit history. Another way to go about this is to clear your debt as fast as you can so you can start building your reserve after repayments.

2. Have a tight invoice

Oftentimes, you can secure sales and still have problems with cashflow because you don’t receive payment on time. You can easily manage your cashflow, and at the same time, save money when you can if you settle your invoices on time.

3. Consider invoice finance

With invoice finance, you can borrow against the value of your unpaid invoices (dues from customers). An invoice finance company pays a percentage of the invoice, usually within 24 hours. Invoice financing can help handle problems with cashflow, improve fiancé plans, and give room to save money. Click here to know more about invoice financing.

4. Cut down your expenses

Reducing your expenses is one of the best ways to save some money. This might look difficult, but there are so many ways you can cut your outgoings. You can start by renegotiating your contracts with suppliers.

To keep their clients, these businesses may offer better rates or terms since they recognize and understand the challenges most of their clients are passing through. Another nice way to go about building a cash reserve is to have a budget.

When you have a budget, you can easily know how much money is left, avoid irrelevant spending, and plan efficiently for the future.

5. Ensure you pay back your reserve

Do not forget to repay the money you took from your cash reserves. Avoid the temptation of withdrawing from your savings without replenishing them accordingly. See this as a debt you owe yourself.

You can also transfer your cash reserve to a separate account so you don’t borrow from it often. Regardless, ensure you pay back when you borrow to secure your business finance.

Make a strategic change in your business