A reserve fund is a financial reserve obtained through cost cutting and savings in general. It is generally a resource that can be used for emergency or specific situations.
To maintain the financial health of the company, this should be an attitude adopted by all companies. This is because this fund can serve for the payment of severance from sudden dismissals, for times of crisis, or for the payment of extra taxes.
The fund is indispensable for possible contingencies, since no business is free from a contract termination or revenue lower than expected.
Reserve fund and liquidity
Specialists point out that the fund should not prioritize profitability, but rather liquidity. “A very common mistake among those who set up the reserve fund is to want this amount to yield high dividends. As a result, the reserve fund is invested in different applications aiming at profitability”.
Despite this desire, the truth is that the reserve fund should prioritize liquidity and not necessarily profitability, highlights the website Capital Social. “After all, what good will a reserve fund be that cannot be used because it is locked in an investment or, worse still, a reserve fund lost in the risk of an investment?”
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In order for the reserve fund to be created, it is necessary that the business be operating “in the green”, as recommended by Bianca Becker, manager of Connect, the live events program of Sebrae/PR on YouTube.
According to her, with the context well defined, the first step is to discuss cost cutting and the reduction of expenses in a strategic manner. “This way, it becomes much easier to discover in which areas you can reduce costs in order to create an emergency reserve for the company”.
Most financial specialists recommend setting aside three to six months of operating expenses, but the reserve may vary according to each company.
Including it in financial planning is fundamental. And doing this planning is essential for companies of any size, emphasizes Endeavor. “So, when putting the numbers down on paper, do not hesitate to project various scenarios”. Endeavor recommends that one should always seek to work with three: an optimistic one, a realistic one and a pessimistic one.
Sources: Capital Social, comunidadesebrae.com.br (Bianca Becker) and Endeavor
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