The more cash you have in reserve, the longer you can ride out a dip in sales or take advantage of an opportunity that requires cash to set up. It could be buying another business, conducting research and development on new products and services, or a cash buffer for a rainy day.
Traditional methods like business loans, overdrafts and adding in more of your own capital will work for a time, but you should identify other ways to increase your cash reserve balance:
- Consider alternative financing options. This could include securing a line of credit or exploring crowdfunding.
- Sell excess stock and operate with a lower limit.
- Sell any unused assets, or assets that you use infrequently and can lease back when required.
- Access Government subsidies or grants.
It’s sensible to have contingencies in place to access capital if needed, so your business can continue to trade when the crisis ends.
Here are some steps to increase your cash reserves, which when implemented together, complement one another.
1: Sell more
Existing customers are your best prospects for immediate sales. They offer the most cost-effective way to increase business because you’ve already spent money on acquiring them. You can:
- Visit key customers if you’re selling business to business. You’d be surprised how many will re-order after a visit.
- Use the 80/20 rule (where 20% of customers tend to provide a business with 80% of its revenue), and use your business data to focus on the customers with the most potential.
- Create a customer contact campaign. Set up an email database and send monthly e-newsletters with specials and ‘customer only’ deals. Find your customers on social media and engage.
Regardless of how long the buying cycle is — from a few days to a few years — the effort spent on returning customers will always represent the best use of your time and money.
2: Find new customers
The best new customers are likely to match the profile of your best existing customers. You should
- Take active steps to gain referrals. Where appropriate, ask existing customers for referrals and develop incentives for customers to refer others.
- Use social media and search profiling to create ads that target your specific demographic.
- Implement a set timeline, such as 90 days, to actively seek new clients with promotions, direct contact, inbound and outbound marketing tactics.
- Identify businesses you could partner with to share marketing costs. If you have similar targets, you could refer businesses to each other. Network and communicate to your industry that you’re keen for new business.
- Use content marketing to gain prospects. Create valuable and informative content — such as blog posts, videos, whitepapers and infographics — that addresses the needs and interests of your target audience. Share this content through various channels to attract potential customers
3: Set up a savings plan
The best way to build a cash reserve over time is to automate savings as much as you can. Develop a detailed budget that outlines all income and expenses. This will help you understand where your money is going and identify when you can afford to save, such as during any seasonal increases in revenue. In addition:
- Review your expenses and eliminate or reduce non-essential costs. This might include renegotiating contracts, cutting discretionary spending, or finding more cost-effective suppliers.
- Arrange for a portion of your revenue to be automatically transferred to a dedicated savings account. This ensures consistent contributions to your cash reserve.
Decide on a fixed percentage of your income to save regularly. Even a small, consistent amount can add up over time.
4: Ladder your investments
This involves investing with staggered maturity dates. It balances the need for liquidity with the desire for higher returns, as it ensures regular access to funds while benefiting from long-term interest rates.
How to ladder:
- Split your total investment into equal parts. For instance, if you have $100,000, you might divide it into five $20,000 investments.
- Invest each portion into certificates with different terms. For example, $20,000 into a one-year certificate, $20,000 into a two-year certificate, etc
5: Find more cash
If you can, invest more of your own money in the business. For example, raise more money against an asset such as a property you own. Other ways to raise cash include:
- Borrowing from relatives or friends — though take care. This approach isn’t always the most reliable source of funds.
- Sell part of your business to employees, other business owners or investors who see the potential of your business and know there is a long-term benefit.
Think about the possibility of a short-term loan if you need some cover.
Next steps
- Determine how much you want to save based on your monthly cashflow. A common goal is to have a cash reserve that covers 3-6 months of operating expenses.
- Establish a realistic timeline for reaching your savings goal, considering your current cashflow and financial obligations.
- Treat your cash reserve as an emergency fund, only to be used for either unexpected expenses, a downturn in business, or to fund your growth.
- Talk to us about setting up a savings plan
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This content is for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. You should consult your own professional advisor for specific financial, investment, and/or tax advice tailored to your needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
