Many businesses struggle to build cash reserves. But maintaining a healthy cash balance is vital to the health of your business. There are many advantages to having extra cash. First, you can avoid a short-term cash crunch. With enough cash reserves, you do not have to fret over making the next payroll. Second, having extra cash will allow your company to seize opportunities that it might otherwise have to pass on. Opportunities like buying out a competitor or expanding into a new market.
How do you build up your cash reserves? Just like you build your personal savings. Set aside a little every month. Make a habit of reviewing your net profits and cash balance monthly and setting aside a percentage into a separate account. Then, leave it alone. Don’t touch this cash until absolutely necessary. And keep saving until you have six monthly operating capital in cash.