When is an financial reserve useful?

Reduced demand

Unexpected rent increase

Hardware failures

Procurement problems

Legal complications

Shortage of funds for salary payments

It is necessary to calculate the amount of financial reserve

Divide costs into fixed and variable costs.

Variable costs vary depending on the volume of production and sales. They include costs of raw materials and supplies, interest payments on loans and factoring agreements, and payment for transportation services. To calculate them, you need to know the fixed costs - they do not change even when production and sales volumes decrease.

Fixed costs are these:

insurance contributions
staff salary
payment of rent and utilities
depreciation charges
outsourcing fees

How to create a financial reserve

Create financial protection for your business with regular contributions from your profits. There are two options: pay a fixed percentage, such as 5% every month, or more, depending on the situation. Analyze your income and expenses:

analyze the services you are using
examine the income and expenditure ledger
think of other things you can save money on
determine what costs can be carried forward
sell company property you don't use

Put the freed up money towards building a financial reserve.

Determining the risks to your business

It is very difficult to predict global risks such as natural disasters or political changes. However, it is important to have a plan in case sales do not reach the planned level or production declines.

Where to store savings

Only highly liquid assets, such as money in bank accounts and deposits, are suitable for keeping a financial cushion. These should be available at all times. Other assets, such as stocks or bonds, may take longer to sell. It is best to keep your money in a bank deposit: it will earn interest and, if the bank's license is revoked, your money will be protected by the deposit insurance system.

Decide how long you plan to stockpile

It is usually advisable to have a financial reserve sufficient to cover expenses for 3-4 months or, at most, six months to a year. The probability that the company will experience difficulties longer than this period is low, and therefore it is better to invest the free funds in the development and growth of the company.

Properly manage your company's finances

Having a financial cushion is an important factor in ensuring the survival of your business.

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Finreser to help your business

Creating a financial reserve for a company helps to avoid crises and guarantees stability.

What is a financial reserve?