Are you sitting on a large pile of cash or are you teetering on a knife-edge waiting for your debtors to pay you just so you can settle your bills on time?

A healthy cash buffer means you can invest in your business when you need to and, more importantly, you can sleep easily at night without the stress of wondering where you’ll find the money to pay next month’s wages.

It’s a common belief that idle money in the bank isn’t working for you. Yet, what’s frequently overlooked is the peace of mind and strategic advantage gained from having a cash reserve. This reserve, known as a cash buffer, acts as a protective shield against unforeseen cashflow disruptions. 

Let’s dive back into why a cashflow buffer is crucial, its benefits, and how to start building yours.

So what exactly is a Cashflow Buffer?

Think of a cashflow buffer as your business’s safety net. It’s a dedicated cash reserve meant to tackle emergencies and unexpected cashflow hiccups. No matter how meticulously you plan, unexpected expenses, cancelled projects and payment delays are inevitable. A cash buffer ensures you maintain your financial plans without a hitch, even when faced with these real-life business challenges.

The Upsides of Maintaining a Buffer

Having a cash reserve translates to tangible benefits for your business. Firstly, it simplifies financial management, freeing up your time which can be better spent on client acquisition, improving your offering and growing your business.

A buffer also brings peace of mind during critical times like payroll, eliminating the panic of covering expenses and salaries. It reduces your reliance on external funding, saving you from the stress and costs associated with loans and interest payments.

So what size buffer should you hold?

So, what’s the ideal size for your cash flow buffer? We recommend having enough to cover 3-6 months of essential operating expenses. These include non-negotiable costs like salaries, rent, and vital subscriptions or software.

For more guidance on the size of the cash buffer your business should hold, check out this blog we’ve written on the topic.

The truth is most agencies don’t hold enough of a cash buffer. If this includes you, I encourage you to make a plan now for building one.

Tips for Building Your Cash Reserve

Building a buffer might seem daunting, but here are some manageable steps to get started:

Start Small and Stay Consistent: Begin by setting aside a modest portion of your monthly profits for this fund. Consistency is key, even if progress seems slow.

Regularly Review and Reduce Expenses: Periodically examine your business expenses. Ask yourself: Are all subscriptions necessary? Can you downgrade to a more cost-effective plan without affecting service quality?

Distinguish Between Emergency and Growth Funds: Your emergency fund should be reserved strictly for crises or golden opportunities. Discipline is crucial in deciding when an expense is truly urgent.

The Power of building resilience into your agency

By building your cash buffer, you’re not only safeguarding your business against unexpected financial challenges but also positioning it for sustained growth and stability. You’re also freeing up your own time to focus on those things that will really help it to thrive.

Remember, a cash buffer is more than just a safety net – it’s essential to ensure your businesses future success.