Building A Cash Cushion

Building Cash Reserves

Building up a financial savings for your business is never easy. Experts say that businesses should have anywhere from six to nine months worth of income safely stored away in the bank. For businesses grossing $250,000 per month, the thought of saving over $1.5 million in a savings account, will either have you collapsing from fits of laughter or from the paralyzing panic that has just set in. If you are just barely making payroll each month, you may need to consider getting rid of any former advice you were following, even if it seemed to have been well advised. So how is a small business owner to even begin a prudent savings program for long-term success?

You must realize that your business will need a savings plan, and this is the first step toward better management. The reasons for growing a financial nest egg are strong. Building up a savings will allow you to plan for the future in your business, this way you will have the investment capital necessary to complete your plans. If you have a source of back-up income, this can carry a business through a rough time.

When we have market fluctuations, like the dramatic increase in oil and gasoline prices; which may start to affect your business, you may have to go into your savings to keep operations running until the difficulties pass. Your savings can support low peak times in your business, so you will have the ability to purchase inventory and cover your payroll until more revenue is generated. Building business savings is not something that happens overnight, but it is similar to building your business, in that they both take time.

Review your books monthly and see where you can trim expenses, then reroute the savings to a separate account. This will help to keep you on track with cash flow and other financial issues. Even though it can be quite alarming to see your cash flowing outward with no end in sight, it is better for it to happen sooner, so you can put corrective measures in place, rather than waiting months to discover your losses, because then it will be difficult to recover.