It’s understandable that many small businesses continually play catchup. They’re usually in a constant state of troubleshooting and often find themselves without the resources they need. With the economic challenges today—supply chain issues, labor shortages, and inflation—it’s a good idea to think about building up reserves for various aspects of your business. Think of this as protection for the future.
Inventory
Inventory management is always a challenge. You want to have enough on hand to meet customer demand but don’t want to overstock and tie up capital.
For many years, inventory management tended toward the Japanese model of just-in-time. Using this model, inventory was not acquired until needed. But with supply chain disruptions and inflation, this model may not be the best. Building reserves, within limits (depending on your space, your money, and your expected customer demand), may be a better course of action—at least until supply chain disruptions and inflation ease up.
Consider using inventory management software to help optimize your actions. It can assist you in understanding your inventory status—what you have on hand, what you’ve ordered, and where it stands—as well as enabling you to better analyze customer demand. Capterra has a list of inventory management software.
Financial reserves
With the height of the pandemic in the rearview mirror, most COVID-19 government financing programs have been ended or will end soon. If you need capital to grow, you might be able to borrow through traditional sources, such as SBA loans or alternative financing. But one lesson from the pandemic is the value of having a deep pocket to dip into in case of a future disruption. Having a financial reserve can avoid the need to borrow money. Moreover, it ensures sufficient cash on hand to pay bills, even if there are temporary disruptions. This will help to maintain your credit rating.
As you might do for personal savings, just decide that your business will set aside money on a regular basis to build up cash reserves. Lendio has tips for small businesses to build up cash reserves.
Caution: C corporations can be penalized for keeping too much in reserves. The accumulated earnings tax applies if reserves exceed $250,000 ($150,000 for personal service corporations) unless there are reasonable business needs for stockpiling (e.g., to buy out a retiring owner; to build a new facility).
Personnel
How can you have reserves when it comes to staffing? People aren’t inventory or cash. Nonetheless, it’s possible to have strategies in place to be able to access workers when you need them.
- Continually look for new employees. There’s always turnover. Perhaps not as much as we’ve seen during the “great resignation,” where 4.3 million employees quit their jobs in August 2021, but people are always leaving. Even if you don’t have an opening now, make connections with potential employees.
- Familiarize yourself with freelance platforms. If you need help with a specific project or during a busy time, a freelancer may solve the problem. Here’s a list of 22 freelance platforms.
- Put temporary agencies in your contact list. Like freelancers, temp workers you engage through a temp agency may meet your needs at a particular time. Temps are employees of the agency; you pay the agency an hourly rate for their work.
- Supplement with AI. Denny’s debuted robots that deliver food to tables. The company claims this frees up the wait staff to have a better interaction with diners. Obviously, robotics is a new area, but it’s worth thinking about now.
Final thought
Aesop said: “It is thrifty to prepare today for the wants of tomorrow.”
Creating reserves is doing just that!
