Small businesses are becoming ever more dependent on their cash reserves in order to fund growth. Saving for a rainy day is an old adage that still applies today. It makes good sense to put something aside for the lean times and for business owners this means building up cash reserves.
Liquidity is the lifeblood of any business and lack of it is responsible for most business failures. Squirreling away cash during times of prosperity may, one day, save a business.
Commenting, Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners and Business Advisers, Irwin Insolvency said “Cash reserves provide the financial flexibility needed to continue operations in difficult times. We sometimes come across businesses that have built up generous cash reserves but are reluctant to use them. However when difficult financial times arrive businesses should never feel guilty about putting those reserves to good use.”
Cash reserves can also provide some unexpected opportunities. If, for example, a competitor is highly leveraged and has grown by using borrowed money. No thought has been given for putting funds away for that rainy day. What happens if the customers cannot pay their bills on time? The unintended consequences could lead to a default on business loans and possible liquidation.
Those customers could be up for grabs.