A cash reserve will help you ensure that you have enough money to pay for your employees and expenses even when there are less or no sales. When your sales are down, lenders may not be interested in lending you money or may charge you a high interest rate. So, small businesses need to prepare a cash reserve before investing in anything else. 

There is no classic rule on how big your cash reserve should be but experts recommend that small businesses should have enough cash to cover their operating expenditure for at least three to six months. You can consult a financial advisor or an accountant to help you determine exactly how much money you need to save and how.

Remember that cash reserves can’t be built overnight. You have to set clear goals on how much money you can save every month for it and try to stick to it as much as possible. Treat it as another bill that you have to pay every month. You don’t have a choice. 

Be very strict about when you want to spend your cash reserve. Being a small business, you may experience cash shortage almost every month. But, that's not an emergency. That could be just poor management. You need to reduce your expenses and increase your sales to deal with such situations. Cash reserves should be utilized only during emergencies or situations when you don’t have any other option such as pandemics, disasters, recessions, etc. If you keep spending from your cash reserve frequently, you may never be able to build one fully. 

More information: https://www.significantgps.com
We help you Grow, Pivot and Stabilize your business through Goals, People and Systems
Franne McNeal: https://www.linkedin.com/in/frannemcneal