Why should every business have a reserve account?

[Etini]

A reserve account for a business is a part of the profit of the business that has been kept aside as a sort of savings for the business. Most business people believe that if they are able to turn out a profit for the business, they should just squander it. But why does a business need a reserve account?

1) To take advantage of opportunities to secure business assets: Every now and then, panic selling occurs. A company with a well structured reserve can always take advantage of these panic sales to secure assets like lands, vehicles and machinery on the cheap.

2) Meeting up with sudden rise in production inputs: Prices of inputs for production can suddenly rise. The business can dip into it's reserves to meet up with this rise without having to borrow or suspend operations to source for funding.

Every functional business needs a financial reserve. Does your business have it?



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[Fecoms]

Because it offers a financial safety net in the event of unforeseen circumstances or emergencies, a reserve account is something that every business ought to have. It provides assistance to businesses in covering unforeseen costs, such as repairs to equipment, compensation for legal fees, or sudden drops in revenue. In addition, having a reserve account not only gives stakeholders the ability to maintain stability and continuity in the face of economic downturns or market fluctuations, but it also gives stakeholders the confidence to have confidence in the company.