Equipment Financing is Key to Preserve Cash
2020 has been a tumultuous year for business. Between a global pandemic and the recession that followed, business owners have needed to adapt to constantly changing circumstances, often digging deep into their pockets to stay afloat.
One of the prevailing lessons that many owners have learned is the importance of cash reserves. At its most basic, a cash reserve consists of liquid funds that are easy to access for covering expenses when times get tough. A healthy cash reserve should typically be able to cover three to six months of business expenses. Think of it like a personal rainy day fund; you want to be sure that you can keep up with your bills for a few months if you lose your income.
Whether revenue takes a hit, customers are slow or no payers, an emergency arises, or any other situation businesses face, having a strong cash reserve can help yours survive. Here are a few good reasons why you should strengthen your cash reserves.
Staying Prepared for the Unexpected
If 2020 has taught us anything, it’s to be prepared for the unexpected. Whether it’s a natural disaster, economic downturn or regulatory changes, unforeseen events can send your business into a tailspin if you don’t have a financial safety net.
A strong cash reserve can ensure that your company is well-insulated from the fallout of these kinds of abrupt changes. For instance, suppose that a natural disaster damaged some of your essential equipment. If you have a healthy cash reserve, then you can use that to replace or rent it while you wait on insurance payouts, allowing you to continue doing business as usual. Your cash reserve can therefore serve as an insurance policy against adverse events.
Reducing Your Reliance on Credit
Having a healthy cash reserve can also reduce your reliance on credit. When something disrupts your business and you end up strapped for cash, using credit cards, taking out loans or dipping into your personal funds may seem like your only options. However, with a strong cash reserve, you can use your business savings to cover unexpected expenses or supplement lost revenue.
While using credit is always a part of doing business, you should take care to do so wisely. Credit cards can be useful for discretionary purchases, but you should not rely on them to cover major expenses. Likewise, loans or financing can help fund large purchases while keeping cash on-hand, but you should do your best to plan for these in advance. A solid cash reserve can help you use credit carefully.
Enhancing Your Business’s Finances
Many actions that you can take to enhance your cash reserves are common-sense practices that can improve your company’s overall financial health. Saving profits, paying down debts and investing internally are all excellent ways to boost cash reserves and your business’s financial status.
LEARN MORE: Your Approach to Financing an Equipment Lease Matters
Another excellent way to maintain enough liquidity for a healthy cash reserve is to finance major purchases. Large expenses like new equipment will quickly drain your company’s bank account, so financing them can benefit your long-term financial health. Ideally, the revenue generated by leasing essential business equipment will be greater than the monthly payment. If you’re ready to finance equipment and your preserve cash reserves, contact us or begin your application.