Building
Your
Company's Reserve Fund
Preserving
your company's cash is more important than ever.
Banks across North America are tightening up their
lending criteria for small businesses, and funds are
becoming scarce. Successful businesses must
rally their own resources to ensure that there
is enough money to carry them through the hard
times.
Once
you have completed the first step of developing
your projected cash flow (don't forget to
include the money you want to pay yourself!),
you can start planning.
For
example, let's say you found yourself with an
extra $27,000 in your bank account at the end of
August. Great. You may decide to use the money
to buy new equipment, or you may simply want to
draw out the surplus. However, by the end of
December, you may find you need $24,500 of that
$27,000 to cover expenses. Without a solid
understanding of cash flow, you might use up
your surplus, not realizing that you will need
it for operating expenses months down the road.
One
way to keep the surplus safe until you need it
is to set up a separate bank account for it.
That way, you will have to make a conscious
decision to draw on the funds, and it won't just
"disappear." You can keep this money invested in
a liquid and short-term investment such as a
money-market fund, or you can seek out one of
the higher-interest savings accounts offered by
some banks and trust companies. Always keep the
surplus working for you, but make sure you can
access it when you need it.
Building Your
Company's Reserve Fund
