In Times of Crises, Businesses Need to Have Adequate Cash Reserves

0
402

Greg SmithBy Greg Smith

I’m sure many have heard the phrase, “Cash is King.” Having adequate savings not only protects a business from unexpected crises like we have been experiencing for the past several months but can reduce an everyday emergency to an easily solvable problem or mere inconvenience.

While the Covid-19 pandemic has negatively affected many businesses, this has not been the case for every owner. Some of those we have surveyed report that sales are similar to last year or even record breaking and a percentage of those are considering expanding their operations.

There are several reasons for this. Perhaps they were able to quickly pivot as in the case of some restaurants which rapidly expanded their take-out capabilities. Other types of businesses shifted to online platforms to maintain or increase sales. Some, like grocery stores, greenhouses, and hardware stores found themselves in the right business at the right time, benefitting from high demand for their goods and services despite the shutdown. Certainly, the Paycheck Protection and Economic Injury Disaster Loan Programs provided an important lifeline, as well. In most cases, the number one reason businesses are weathering and even thriving during this storm is because they saved enough money to pay three to six months of their expenses even though sales dwindled.

It is more important than ever that cash reserves be established and replenished. To ensure adequate savings, owners should consider it a fixed expense. The adage, “Pay Yourself First,” comes into play. Money should be placed in a separate account and a guide established to address what constitutes an emergency specifying when those funds are to be utilized. Savings should always be replenished as quickly as possible to ensure adequate cash is available to meet expenses.

Owners shouldn’t be discouraged when they realize the large sum of money needed to have adequate savings. Even a few hundred dollars saved monthly can add up in a year and any amount saved is better than none.

Those businesses which have seen record sales need to be cautious because as the economy returns to “normal,” sales may decrease to pre-Covid levels. Owners should curtail spending, build up their reserves, and revisit their business plans monitoring cash flow and sales projections.

Finally, entrepreneurs considering starting a business should reflect on the types of businesses and industries which have been successful and the likely reasons they are rebounding during this crisis. Start-ups need to make certain they are not undercapitalized and might consider waiting for the economy to stabilize prior to launching their business.

Greg Smith is the executive advisor for the Umatilla Electric Cooperative Business Resource Center. To schedule a free and confidential business advising appointment, call 541-289-3000 or email uecbrc@gmail.com. The center is located at 1475 N. First St., in Hermiston.