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Cash reserves are an important part of business economics and are a critical pillar of your business growth. This doesn’t mean it is easy to build these reserves, especially for small businesses and dental practices.

Let’s look at their importance and how to build them up.

Managing Creditors

Renegotiate your debt with your creditors to ease your debt pressure, as they will often accept longer settlement periods. This lowers monthly installments, and you can allocate the difference to building cash reserves. If they are not open to re-negotiation, then take your debt elsewhere for a better deal.

Over the long term, profitability is essential to a business. But in the short term, cash flow is the metric you need to watch because if you run out of cash, your business will likely end up dead.

If the river represents cash flow to your business, what is a dam?

Simply put, the dam – and the reservoir it creates - represents cash in the bank, also known as retained earnings.

I frequently cross the Potomac River north of Washington DC. Recently, as I sat directly above the Potomac waiting for traffic to start moving, it occurred to me that just as the river feeds the Chesapeake Bay with water, a river of money to keep your business fed.