Today, we're going to
cover a pivotal topic,
keeping a business cash reserve
so your business will be prepared
for those unforeseen circumstances.
Hey, my name is Morgan Law
from finepoints.biz
and my goal is to better help
bookkeepers and business
owners manage their finances.
And I actually have
a whole YouTube channel
dedicated to that
today im partnering
with QuickBooks on a video series
to help business owners
better manage their businesses.
Most business owners
know that everything
doesn't always go according to plan.
It might be smooth sailing
and then all of a sudden, bam,
an unexpected tidal
wave comes along.
That's where cash reserves come in.
They can be a life raft.
That small business owners
can cling to
when unexpected expenses
threaten to sink you.
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Cash reserves are a
businesses emergency fund,
so they should be funds
that are put away intentionally
and also that are going to
be immediately available
should you need them.
A cash reserves account
doesn't need to be only cash.
Short term liquid investments
that can quickly
be converted to cash
can also be part
of your cash reserves.
Cash reserves are important
because they provide cash flow.
should your expenses go up
or if your revenue drops.
It'll also save you
from having to go
into credit card debt
or having to take out a loan.
Although a business might seem
stable and predictable,
an unexpected event
can really turn things sideways.
Many business owners actually
have to use personal funds
to stay afloat during a rough patch.
But if you have that cash reserve,
that is going to help
you avoid that problem.
Generally, it's a good idea
to keep as much cash on hand
as you need to cover
three to six months
worth of business expenses
but this isn't a one size
fits all for every business.
So consider the following things
when you're deciding
how much cash to keep on hand.
How much cash does
your business use?
At minimum,
you want to be able to cover
operating expenses
for the amount of time
that you plan for
So take a look at your
statement of cash flows
and some other expenses
to see how much you spend monthly.
If a business stops bringing money
your emergency fund
needs to be able to cover expenses
until the income starts up again.
How much cash will
your business need for the future?
Your cash reserves
should be able to
sustain your business
if something happens
not just for tomorrow,
but for next year
and the year after.
And if your business is growing,
think about future expenses
that you might incur.
Keep in mind that growing businesses
may need more cash on hand.
So think about what expenses
you're going to need in the future.
What sources of cash
are available to your business
with your cash reserves?
You don't need to
just think about it
as digits in a bank account.
How are other ways
that you could secure some money?
Maybe if you have some investments
that are liquid,
you can convert that to cash
and then add that into
your emergency fund.
Now let's talk through a few
strategies to build
your cash reserves.
Number one, set monthly
savings goals.
So it can be really overwhelming
to think about a big chunk of money
that you need to save up.
But don't worry,
you don't have to do it overnight.
Think about smaller
monthly savings goals.
One option is to set aside
a certain percentage
of your profits each month,
or you can just choose a set amount
that you want to save every month.
Breaking it down into smaller
goals like this is going to be far
less intimidating.
Number two, treat cash reserves
as non negotiable,
just like other expenses,
cash reserves need to be built
into your business budget.
Until the emergency fund
is stocked with enough cash,
It should be treated
as a fixed expense.
This will keep you accountable
for actually filling it up.
I personally love
the automatic transfer system
that many banks have.
You can set an amount for it
to transfer into savings each month.
Number three, create guidelines
for tapping into your cash reserve.
It's not enough just to build
your cash reserve,
you need to maintain it.
It needs to exist
only for emergencies
and unexpected expenses.
Create guidelines
for when you can
and can't access it.
This will make sure it's
truly a rainy day fund
and not just a glorified
expense account.
We all know the sentiment
about saving for a rainy day.
But unfortunately, weather
forecasts aren't always accurate.
Sometimes you can be
caught in a downpour
even when you were expecting
nothing but sunshine.
In those cases,
you'll be so glad that you built
some solid cash reserves.
Thank you so much
for watching today.
I would love it if you give
this video a thumbs up,
as well as subscribe
to QuickBook's YouTube channel
for more videos just like this.
I hope that your
skies are sunny today.