When Will I Have To Dip Into My Business Savings?
As any cash-savvy business owner will tell you, keeping some savings aside for a rainy day is an important part of looking after your business finances. Now it would appear that rainy day is, in fact, upon us. But is it time to dip into those cash reserves? And if not now, when?
Understanding when you will hit your cash buffer, what will cause you to need to use your cash reserves, and how much of a buffer you actually need is essential to help you make key business decisions during this uncertain time.
Do you have enough of a cash buffer for your business? The general consensus is to save 3-6 months of cash as a buffer to tide your business over through difficult times. But even if you have less than that saved up, it’s important to use what business savings you do have in the right way. These reserves can help if your income dries up or will help bridge gaps when you’re waiting for invoices to be paid.
So, under what circumstances might you need to use your business savings?
To truly understand your position, you can use Float to create a detailed cash flow forecast of money coming into and going out of your business. You can also set a lower threshold to alert you to when you might need to draw upon your cash reserves. By setting a threshold to signal when you’ll hit your cash reserves, you can understand if and when you’ll hit that buffer.
By planning ahead, you’ll have a better understanding of when you’ll hit that critical point, and you can use this foresight to guide any business decisions.
“Thanks to Float I can now make educated decisions… I can easily go into Float, and put in our sales estimates to get a rough idea of what our bank balance will be over the next few months, which is very useful for planning.
“As the Managing Director, seeing the pipeline for ‘cash in’ puts me at ease, otherwise it’s sort of like you’re staring into the unknown,” Gordon McLachlan told us, when discussing using Float for his award-winning web agency Primate.
As well as using your actual cash flow forecast, you can use Float’s scenario planning tool to examine multiple ‘what if’ scenarios that could mean you hit that bottom line.
- What if my city goes into lockdown?
- What if I get sick and can’t work?
- What if we lose a key client?
Mapping out the potential scenarios means you’ll be as prepared as possible for any financial curveballs that come your way.
No business owner really wants to dip into their cash reserves, but over the next few months it may be inevitable. The best way to deal with uncertainty is to expect the unexpected, and understand precisely if and when you’re going to need to use that rainy day fund to keep your business afloat.
Want to understand when you’ll need to use your business savings? Try out Float today.