How to build a cash war chest when money is tight

Your “war chest” is the financial reserve your business has built up so you can take advantage of an opportunity or cover unexpected costs or emergencies. Building a cash reserve when finances are tight, however, can be difficult. You need money to continue running your business but, if at all possible, you want to keep your reserve account healthy.

Here are some ways to build—or preserve—a cash war chest during a crisis.

1. Shift all extra money to your cash reserve

Some of your costs stay the same during a pandemic, but other expenditures are no longer necessary. You may have had money allocated for business travel or networking events that will not happen. Discretionary money for entertainment or hiring may now be freed up. Take some of that money (or all of it, if possible) and add it to your cash reserves.

2. Preserve cash where possible

Go through your expenses and see what you can reduce. Are there ways for you to cut costs so additional money can be put into the cash reserves? Are there services you pay for that you don’t need to right now? Are there software subscriptions you don’t use?

Variable costs are often the quickest areas to save money.

Make laying people off the last resort, if at all possible. For some businesses, employees have to be let go but remember that at some point you’ll need to have your business operational again and for that to happen, you need employees.

3. Take advantage of assistance programs

Government assistance programs are there to help you during this crisis. Pay attention to any loan repayment terms and don’t sign up for anything your business can’t afford to pay back, but if there are programs you’re eligble for, use them.

It’s not just the government offering assistance, either. Financial institutions, large corporations and loan providers are all looking at ways to support small businesses and prevent entrepreneurs from closing up shop. Do some research to see which of those you’re eligible for and apply.

Use that money to cover your expenses, and use any freed up money to build up your reserves.

4. Make alternative arrangements with suppliers

You may be able to push back payments to your suppliers. Talk to your suppliers to find out if there are ways to extend your payment deadlines without damaging your relationship with them. See if there are arrangements that save you money without costing them a lot. Even slightly extended payment terms can help you with your cash flow so you don’t have to dip into your war chest.

What’s next?

When you’re trying to keep your business alive, putting money in the war chest might not be high on your priority list. Even if you can’t put money into the reserve, do your best to avoid taking money out of it unless absolutely necessary. If you do have to dip into it, try to pay that money back as quickly as you can.

Find ways to reduce expenses—especially variable expenses—and even bring some money in if you can. There are some things you can do to save yourself some money and live to fight another day.

If you’re worried about cashflow, please get in touch with us.

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