Building A Cash Cushion

Building Up Your Financial Reserves

Building a financial cushion for your business is never easy. Many experts will tell you that you should have at least six to nine months worth of income put away in a 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. What may be a nice well-advised idea in theory can easily be tossed right out the window when you’re just barely making payroll each month. With this in mind, how can small business owners begin to wisely save money to ensure their long-term success?

Realizing that your business needs a savings plan is the first step toward better management. By doing this your business has a much better chance of being successful. Building savings allows you to plan for future growth in your business and by having the necessary investment capital ready, you can use it toward launching such 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.

Make sure to review your books on a monthly basis and see where you might be able to trim some expenses, so you can re-route the savings into another 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.