Cash flow buffers act as a financial cushion for unexpected expenses or lean periods. Building these reserves allows you to operate smoothly when sales dip, unforeseen costs arise, or customer payments are delayed. For example, an events company might save part of its peak season earnings to cover off-season periods when revenue slows.
To build a buffer, you should aim to set aside a percentage of profits regularly. While this may seem challenging, especially in tight financial situations, creating a safety net - even a small one - can prevent the need for emergency loans or overdrafts, which may come with high costs and strain cash flow further.
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