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How to create and manage a business cash reserve | Morgan Law @FinePoints - YouTube
Channel: QuickBooks
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today we're going to cover a pivotal
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topic keeping a business cash reserve so
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your business will be prepared for those
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unforeseen circumstances hey my name is
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morgan law from fine point stop biz and
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my goal is to better help bookkeepers
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and business owners manage their
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finances and they actually have a whole
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youtube channel dedicated to that today
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i'm partnering with quickbooks on a
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video series to help business owners
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better manage their businesses
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[Music]
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most business owners know that
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everything doesn't always go according
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to plan it might be smooth sailing and
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then all of a sudden bam an unexpected
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tile wave comes along that's where cash
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reserves come in they can be a life raft
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that small business owners can cling to
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when unexpected expenses threaten to
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sink you
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if you find this video helpful today
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make sure to give it a thumbs up as well
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as subscribe to quickbooks youtube
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channel down below and if you're more of
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a reader there's also going to be an
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article linked in the description box
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cash reserves are a businesses emergency
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fund so they should be funds that are
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put away intentionally and also that are
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going to be immediately available should
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you need them
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a cash reserve account doesn't need to
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be only cash short-term liquid
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investments that can quickly be
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converted to cash can also be part of
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your cash reserves
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cash reserves are important because they
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provide cash flow should your expenses
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go up or if your revenue drops it'll
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also save you from having to go into
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credit card debt or having to take out a
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loan although a business might seem
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stable and predictable an unexpected
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event can really turn things
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sideways
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many business owners actually have to
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use personal funds to stay afloat during
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a rough patch but if you have that cash
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reserve that is going to help you avoid
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that problem
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generally it's a good idea to keep as
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much cash on hand as you need to cover
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three to six months worth of business
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expenses but this isn't a one size fits
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all for every business so consider the
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following things when you're deciding
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how much cash to keep on hand how much
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cash does your business use at minimum
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you want to be able to cover operating
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expenses for the amount of time you plan
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for so take a look at your statement of
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cash flows and some other expenses to
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see how much you spend monthly if a
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business stops bringing money in your
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emergency fund needs to be able to cover
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expenses until the income starts up
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again how much cash will your business
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need for the future
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your cash reserves should be able to
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sustain your business if something
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happens not just for tomorrow but for
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next year and the year after
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and if your business is growing think
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about future expenses that you might
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incur
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keep in mind that growing businesses may
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need more cash on hand so think about
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what expenses you're going to need in
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the future what sources of cash are
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available to your business
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with your cash reserves you don't need
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to just think about it as digits in a
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bank account how are other ways that you
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could secure some money maybe if you
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have some investments that are liquid
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you can convert that to cash and then
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add that into your emergency fund
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now let's talk through a few strategies
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to build your cash reserves number one
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set monthly savings goals so it can be
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really overwhelming to think about a big
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chunk of money that you need to save up
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but don't worry you don't have to do it
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overnight
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think about smaller monthly savings
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goals one option is to set aside a
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certain percentage of your profits each
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month or you can just choose a set
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amount that you want to save every month
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breaking it down into smaller goals like
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this is going to be far less
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intimidating
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number two treat cash reserves as
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non-negotiable
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just like other expenses cash reserves
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need to be built into your business
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budget
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until the emergency fund is stocked with
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enough cash it should be treated as a
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fixed expense this will keep you
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accountable for actually filling it up i
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personally love the automatic transfer
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system that many banks have you can set
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an amount for it to transfer into
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savings each month number three create
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guidelines for tapping into your cash
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reserve
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it's not enough just to build your cash
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reserve you need to maintain it it needs
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to exist only for emergencies and
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unexpected expenses create guidelines
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for when you can and can't access it
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this will make sure it's truly a rainy
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day fund and not just a glorified
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expense account we all know the
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sentiment about saving for a rainy day
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but unfortunately weather forecasts
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aren't always accurate sometimes you can
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be caught in a downpour
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even when you're expecting nothing but
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sunshine in those cases you'll be so
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glad that you built some solid cash
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reserves thank you so much for watching
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today i would love it if you give this
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video a thumbs up as well as subscribe
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to quickbooks youtube channel for more
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videos just like this i hope that your
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skies are sunny today
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[Music]
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you
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