A healthy savings reserve is an important asset to build if you want long-term business success. It provides a buffer zone to help you ride out sudden economic disruptions without resorting to expensive debt.
The current COVID-19 situation shows the value of having savings, giving small businesses breathing space to assess the situation and start to plan for whatever the future holds. Here’s what to consider when putting together your plan.
1. Review your books
First, get closer to your books than ever. Instead of treating accounting as a quarterly or even yearly inconvenience, make it a central part of your business. Review your income and expenses at least monthly so that you constantly have your finger on the cash flow pulse.
2. Make informed decisions
Having your cash flow details in black and white will often show you where you need to improve. It’ll help you make informed choices about balancing expenses, savings strategy, and overall business direction. Some of these decisions may be difficult or unpopular, but when you’re led by the numbers you’ll have a solid grasp on how and why you need to take action.
For example, if cutting staff numbers will reduce overall turnover but increase profit, this might be what you need to do to secure the future, however tough that decision may be.
3. Revisit your business model
For the longer term, building a savings reserve also relies on a strong business direction. Regularly review your overall situation, including business plan, market conditions, and competitor strength and activity.
Review your strategy
Build a clear picture of exactly where your business stands within your sector, and whether it’s on course to remain relevant and competitive. Your business’s current growth stage is important when reviewing your strategy:
- Is your business a recent start-up? If so, your focus should be on shoring up your current position, keeping your outgoings as lean as possible to hone your core business. This usually means following a relatively conservative savings strategy when cash flow is tight.
- Is your business currently in a growth phase, partly fuelled by a capital injection? If so, make sure you’re accounting for how this money is spent, using it carefully for crucial business development areas rather than funding operating expenses. There’s little point working on savings if capital isn’t being used 100 percent optimally.
- Is your company at a mature stage and running smoothly? If so, you may need to balance your savings strategy with investment in solutions like GICs or mutual funds. Short, medium and long-term investments are key to growing your business savings.
Savings should be at the heart of any sound business strategy, but there needs to be an overall balance between building a reserve fund, controlling expenses, and growing your company to keep it sustainable for the long term.