We're still in early fall, but winter isn’t far behind. For some small businesses, this is a slower period. If you're not catering to holiday shopping, you may be losing out on revenue as customers tighten their budgets for their own winter worries. You may face other expenses like increased energy bills and holiday pay. Having a healthy cash reserve can make it easier to make ends meet through the winter. Following are five tips to build your reserve as soon as possible.
1. Review and Tighten Expenses
Start off by reviewing all of your business expenses, and then tightening up your spending. Trim any unnecessary costs, as even small adjustments can add up over the course of several months. Look at recurring charges that are no longer bringing you needed value. Cancel subscriptions, unused software licenses, or marketing campaigns that aren't performing well and are no longer worth the investment.
Look into renegotiating contracts with suppliers and service providers. Some may be willing to give you a lower rate in order to keep your business.
Find ways to increase efficiency and lower utility bills. Lower thermostat settings during non-business hours. Use energy-efficient lighting. Any reduction in your expenses is potential cash for your reserve.
2. Create a Short-Term Savings Strategy
Beyond trimming expenses, create a short-term savings strategy that will allow you to increase your cash reserve quickly. Open up a separate savings account specifically for the cash reserve if you haven't already. This will help you make sure funds aren't accidentally absorbed into regular spending. Automate savings so transfers are made each week. Even if you need to reduce the amount you're transferring in the future, the higher you can make this amount in the short term, the better prepared you'll be heading into winter.
3. Treat Your Cash Reserve as a Fixed Expense
As you're trying to save quickly, you should treat your cash reserve as if it's a regular expense like any of your other financial commitments.
"Would you not pay your employees? Or skip your electric bill? We didn’t think so," says Griffin Parrish from QuickBooks.* "These fixed expenses are part of your business budget, and your cash reserves should be too. Until you’ve stocked your emergency fund with enough cash, treat it as a fixed expense. This will keep you accountable for filling it up rather than treating it as something to
do when you feel you have extra money to throw at it. If you find it challenging to keep track of your budget, using software to automate your savings or trying techniques like envelope budgeting may help you build your emergency fund. In addition, you’ll also want to prioritize replenishing your cash reserve whenever you take money out. That way, you’re still prepared if other unexpected expenses arise."
4. Boost Revenue with Seasonal Promotions
Drive a quick revenue increase by offering seasonal promotions. Use the coming holidays for offering bundles or other discounts. Service businesses can offer "prepay and save" packages where a customer purchases a winter service in advance at a discounted price. You can also promote loyalty programs and/or gift cards. Gift cards can contribute to immediate cash flow while getting customers in the door at a later date, keeping your business top of mind for a longer period. You can find ways to upsell to them later.
5. Look at Financing Options Before You Need Them
Make sure you have your finances planned in advance before you need to tap into a cash reserve. Cash on hand isn't your only option to be prepared. Look into financing options, whether it's a loan, a line of credit, or a business credit card. Any of these can be greatly beneficial in helping you get through a slow winter or unexpected expenses that come up. Talk to your bank to figure out what the right option is for your particular situation. Even if you have a solid cash reserve, these financing options can provide an extra layer of financial security for a small business.
For some small businesses, winter can be a resilience test. Tighten your expenses if needed, and plan accordingly.
