Why your business needs a cash reserve

One of the biggest assets to any business of any size is cash. Money is the key to a successful business. Cash is needed by businesses to get into business and to stay in business. Because money is so important to a business, it is understandable why cash reserve could be a crucial part of any prospering business. But what are some of the exact reasons why a business needs a cash reserve? This article discusses some of the many reasons why a business needs a cash reserve.

So you don't got out of business

Any type and size of business needs a cash reserve so that they do not go out of business. If a business does not have a cash reserve they will not have the money they need to purchase things to stay in business-such as supplies and equipment. If they do not have the money to purchase the things they need to stay in business they will have to close down.

For protection

Every business needs a cash reserve as protection. Businesses need a cash reserve for protection against many things in the business world. For example a business needs a cash reserve for protection against their customers. This protection provided by cash reserves is especially needed for businesses that allow their customers to purchase things using credit.

It is possible that even the most dependable of customers may not be able to pay their bill on time, or even at all, at least once in the many years a company does business with them. But just because they cannot pay their bill, it does not mean the business does not need to have their money right away. A cash reserve can keep a business safe during times like this. Instead of not having the money from the invoice and having to figure out a way to get the money, they can use their cash reserve for any expenses they have until they get paid by their customer.

To pay down debts

The majority of businesses have some sort of debt. Whether the debt is to pay off the loan that helped the business get started, or the debt is to pay off inventory or office equipment, it needs to be paid. A cash reserve can help a business pay down their debts. When the money comes in, the business can use the cash reserve to pay their loan payments and pay on the other debts they owe.

So you won't have to get a loan

While loans are an essential part of many businesses, they do not need to be something that a business relies on all of the time. If a business has a cash reserve, they will not have to resort to things such as invoice factoring or taking out a business loan to help them get the money they need right away. Options like invoice factoring are good options to have available when a business really needs help. But these services charge fees. These fees could be considered unnecessary if the business would just do a little planning instead.

If a business would plan ahead, and have a cash reserve on hand, they would not have to resort to services that will charge fees. Instead, they could use their cash reserve when times get tough, and then when they get paid by their customers they can keep all of the money instead of coughing up part of it to other companies for the fees they owe.