Cash Reserves
Cash reserves refer to the fund that is available in the business treasury, to manage the expenses that go beyond the cash inflow of the company for a certain period of time.
In Banking it may refer to the amount of cash that a bank must maintain by its regulations. For running a business it must have a certain fixed amount of cash reserve.
If cash reserves of a company get depleted, then it can borrow a certain amount from a bank and the company is subjected to repay the debts in installments. If a company’s cash reserves gets depleted fully then the company will have to go into bankruptcy. Hence it is important to maintain a constant cash reserve proportional to the growth of the business.
How to achieve a good Cash Reserve
- Cutting the unnecessary spending and saving aggressively during the initial stages of business is necessary.
- Indentifying the current or liquid assets and knowing the actual cash value of the total assets is necessary.
- Developing a saving plan that will constantly return some money in your Cash Reserve, will help in increasing your cash reserves.
Hence a company is needed to maintain and review its cash reserve occasionally, in order to understand the income and expenditure of the company. Also only with the help of a good cash reserve can a business flourish even during low lying days.
