How to set up a cash reserve

Setting up a cash reserve

It’s vitally important to build up a cash reserve for your business in case you ever find yourself needing additional funds.

This could be for an unexpectedly high tax bill, an economic crisis that reduces sales or a disaster such as a flood or fire that disrupts your business income.

The benefit of having a cash reserve on hand is that if and when the unexpected or unplanned event hits, you don’t have the added stress of having to apply for a business loan or credit card.

 

Top tips for setting up a cash reserve

  1. Know how much you spend each month and how much you plan to spend.
  2. Work out how much you need to build up in your reserve account to get you through 3 to 6 months.
  3. Decide on an account to keep the reserve funds in.  Take into consideration how long it will take to access it if and when it is needed.
  4. Decide if you are going to save a set amount each month or a percentage of your sales.
  5. Set up a standing order from your business account into this reserve account if saving a set amount. (the recommended option as you won’t notice the money going out)
  6. Funnel money manually each month if saving a percentage of sales (this option is not recommended as its too easy to skip a month here and there)