How to increase your cash reserves?
Examine your typical day's sales outstanding (in other words, how long it takes to collect from your customers).
- Try to change payment terms and optimise invoicing processes
- Increase sales to bring in more cash
- Track closely your operating expenses
Building cash reserves, however, should never obstruct or hinder funding what the organisation needs to fund in order to grow its business. Investments with high returns need to stay your priority.
On the other hand, having enough cash on hand not only keeps you prepared for unexpected catastrophic events; it also makes you ready to utilise unexpected opportunities that appear only rarely. The cfo.com website advises that if your organisation does not have cash reserves, it may not be able to take advantage of the following opportunities if they should appear unexpectedly:
- Mergers and acquisitions
- Recruiting a key employee base to manage future growth
- Sudden expansion of the business
With enough cash on hand you can seize such opportunities as they arise without having to chase additional funds elsewhere.
Do have cash, but not too much
Of course it would not be very productive to slow down growth or turn a blind eye to high-growth areas of your business and instead become obsessed with accumulating reserve cash.
Ideally you will never have to operate solely on your cash reserves for a long period. However, unforeseen disasters or downturns put you in a position where you cannot really estimate when exactly normal business conditions will return. So more cash on hand means less disruption to your organisation's daily operations.
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