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21 Ways to Create an Emergency Cash Reserve for Your Small Business

Feb 13, 2018

One of the most difficult challenges faced by small business owners is having enough excess cash or liquidity to protect their business from the unexpected. Issues from equipment that stops working, adverse weather events, slow sales cycles, competition, reduced demand for products and services, etc., the small business owner needs to be prepared for adverse events that impact cash flow.

According to one of our Small Business Reports, 41 percent of business owners surveyed reported they did not have a financial backup plan in place in the event of an emergency. If you fall into this category, there are small but impactful ways to create liquidity gradually.

To start, set a minimum goal of  saving three months worth of total business expenses. This means 100% of total cash expenses multiplied by three. This is your initial reserve target. To achieve this, you have to get FRUGAL. This means you become a CPA – “Cheapest Person Alive.”  Start one month at a time and minimize every discretionary dollar spent – EVERYTHING. Remember, not having a cash reserve leaves your small business in a vulnerable position. The only way to change this is to aggressively save and build those reserve levels. Here are some helpful ideas to help generate your cash reserve fund:

  1. Every time you save a dollar, add it to the reserve fund. Make this a completely separate account from your operations.
  2. Go through every dollar spent in your business for the past 3 – 6 months and create a list of every item or action you can think of that you can do differently for less money.
  3. If you outperform in a given month and create incremental cash flow, throw the excess cash into a reserve fund.
  4. Man the sales counter yourself versus hiring extra staff.
  5. When you get to 3 months of total expenses in your reserve account, then grab a beer or a seltzer and do it all over again. Yes, three months is the minimum you need as a reserve.
  6. Once you’ve reached your goal of 6 months total expenses as your small business liquidity reserve, you covet this account. It doesn’t get touched. Not for any reason.
  7. Manage your accounts receivable turnover and reduce the number of days it takes you to  get paid.
  8. Negotiate prompt payment discounts with your vendors.
  9. Understand your total unit costs and profit that needs to be covered with every item sold or service rendered.
  10. Make sure sales commissions are aligned with your total pricing and net profit margin.
  11. Generate cash rebates by paying bills with a high-value credit card. Make sure you pay this bill timely every month or else you’ll incur fees and interest.
  12. Improve upon collecting the money owed to you. Outsource any aged debts to professional collections firms and attorney networks if you aren’t paid within 60 – 90 days.
  13. Work with your accountant to minimize your taxes.
  14. Staff smartly. Hire staff that can work flexible hourly schedules only when you need them. Tons of money is wasted in business by paying for excess staff during low volume periods.
  15. Don’t try and be all things to everyone – it’s too expensive. Understand what products and services generate the highest amounts of cash flow and stick with those.
  16. Stay away from inventory that doesn’t turn over.
  17. Negotiate lower insurance costs.
  18. Before you buy equipment, evaluate lease versus buy options. Consider purchasing  used equipment.
  19. Have a solid procurement process : Use purchase orders, negotiate all terms, validate shipments received to orders placed on payments made.
  20. If you have a banking relationship, then you’ll want to have immediate access to credit lines, credit cards, business loans, and cash savings.
  21. Consider business financing solutions to help build a cash reserve. Getting a line of credit is hard for small businesses. If you have a relationship with a merchant cash advance company, like Reliant Funding, you’ll want to have immediate access to cash and consider using it as a way to build reserves.

While you can’t predict emergencies, you can empower yourself to take a closer look at the particulars of your business to see where you can make impactful changes. For more information on how our funding can help your small business, contact us.


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