Reserve funds are a crucial component of small business strategies for success. This is a lesser known component of the business world, but investors and savers are catching on and incorporating the tenets of a reserve account into their daily lives as well. When used in tandem with other financial products, the reserve fund is one of the most potent implementations that a business can utilize when chasing after short term successes that can create the growth you hope to see in your long term plan.
Simply put, a reserve account acts as a hedge against fluid purchasing. This is what helps keep the daily expenses in the black and is crucial for smooth operations throughout the day, week, and quarter of standard trading.
Why use a reserve fund?
The greatest benefit of a reserve fund is the protection it grants to businesses. A reserve account is crucial for anyone who accepts credit or debit card payments. This is because of the nature of flowing capital. Chargebacks, cancelled purchases, and other oddities that can occur when a debit or credit card is used to make a purchase can suddenly and unexpectedly create a major dent in your cash flow or expense account. With cash, merchants retain the financial instrument in a fixed and tangible form once the transaction has been completed, whereas this same transaction is fundamentally different when carried out through bank account or credit purchases.
While returns are always going to be a part of business, the reserve fund is utilized to cover loss of capital that happens when a fraudulent purchase is made, a consumer illegally disputes a payment, or the bank is slow in processing the transfer of funds from one location to another.
Savings are crucial, but different.
Businesses also need a robust savings account in order to create lasting improvements. In addition to debits that must be made in the course of business, your company will benefit greatly from a savings account that can kick in to take on major maintenance or future repair needs, as well as to fund any capital projects you may have coming down the pipeline in the future.
Expanding a product line, opening a new location, or boosting sales through a major advertising campaign all require a cash reserve to fund the new direction, yet the reserve account is not the right space in which you should save these liquid assets. Savings accounts can help you separate the regular expenditures on your balance sheet from these additional expenses that require longer term vision.
While reserve account funds are crucial to keeping you brand afloat in the short term, savings are a long term remedy to inflation and a changing business landscape that forces innovation and change into every office and sales floor. Rather than relying too heavily on borrowed capital, a savings account can give you the ability to direct a small percentage of your monthly or quarterly earnings into an account designed specifically for funding improvements and expansions.
Both a reserve account and a savings account are essential for long term business growth. Without reserve funds available, your day to day operations would sink as a result of frequent debit and credit card transactions. On the opposite end of the spectrum, without the long term savings required to fund major improvements and overhauls to your brand, it can be impossible to keep up with the constantly changing landscape of business in your industry.
Both accounts are easily accessible through your preferred financial institution. Make the smart move and protect your assets for continued growth and brand success that will launch you into the future.
