As the year winds down, many small businesses — particularly in retail, hospitality, and professional services — are feeling the pinch from reduced consumer spending. According to Prospa’s October 2024 SME Sentiment Survey conducted by YouGov, three-quarters of business owners anticipate challenges this peak season, with reduced consumer spending topping the list.

This is when a cash reserve becomes a business lifesaver, providing the buffer needed to manage unexpected expenses, handle cash flow dips, and stay resilient through seasonal ups and downs. Yet, the survey shows that two in five small businesses either have no cash reserves or hold less than one month’s worth of expenses. Sole traders are even more vulnerable, with 22% operating without any cash cushion — double the rate of other types of business.

What a cash reserve can do for your business

“For a solopreneur in health and fitness, end-of-year income can be unpredictable. Clients are more focused on holiday plans, which often leads to cancellations or pauses in coaching. A cash reserve helps smooth out these slower months,” says Lucie Robazza, owner of Strenxia, a health and fitness coaching business for busy professional women.

Strenxia maintains a minimum three-month cash buffer to cover all operational costs, with plans to expand to six months during the next growth stage. “Slow months are a great opportunity for me — I have more time to work on the business, continue investing in my education, and plan for what’s next. Without a financial cushion, I couldn’t do any of that or maintain the confidence and peace of mind to keep my clients on track with their fitness goals,” says Robazza.

How to build a cash reserve before the year-end

We know the pressures during this time of year can make building a cash reserve feel out of reach. But the following tips make it simpler than you might think:

Start a finance detox

Begin by identifying unnecessary expenses or costs that can be reduced so that savings can be redirected to your cash reserve. Take a line-by-line look at your expenses to spot unnecessary ones, like unused subscriptions or memberships. To cut down costs further, look for lower-cost alternatives or negotiate better rates with suppliers or service providers. Switching to paperless and energy-efficient solutions can also help save money, as well as leveraging technology to automate processes where possible. And if you need specialised support, consider outsourcing specific tasks to freelancers or agencies instead of hiring full-time staff.

Optimise stock levels

Avoid overstocking and focus on inventory that moves quickly. For any leftover items from previous seasons, consider implementing tactical campaigns, such as flash sales or bundle discounts, to move them faster. Seasonal promotions around key sales periods can also help clear older stock.

Using inventory management tools to track product performance and forecast demand can help avoid overstocking and reduce waste. To keep your operations agile, consider the flexible storage and fulfilment options offered by third-party logistics providers. These will also help to keep your fixed costs down.

Automate savings

First, calculate how much you need each month for essential expenses. Then, from what’s left, set aside a small amount regularly into a separate account dedicated to your cash reserve. Think of this like a fixed expense — treating it as non-negotiable can help you build your reserve steadily over time. You can start small and increase the amount as saving becomes a habit and your confidence grows.

Many experts recommend having enough saved to cover at least three months of expenses. Building this cushion gives your business a reliable safety net for unexpected costs or challenging periods.

Get ahead of overdue payments

New figures from the Australian Small Business and Family Enterprise Ombudsman show a surge in calls for help from small business owners concerned about late or missed payments and their ability to meet financial commitments. To keep cash flowing smoothly, encourage clients to pay promptly by offering small discounts for early payments. Setting clear terms, like requesting a deposit or partial payment upfront for new or larger projects, can also secure some cash flow at the start. For extra peace of mind, consider implementing late fees to discourage overdue payments.

Power up your processes with tech

If you currently rely on staff for time-consuming accounting tasks, consider outsourcing some of these to a technology platform, such as a financial management service. The Prospa App, for instance, brings everything together in one clear view, giving you greater control over your cash flow. With features like Bill Pay, you can stay on top of payments, track which bills are scheduled and paid, and avoid late fees.

Automated invoicing systems, like Xero, also make it simpler for customers to pay on time, and they allow a direct feed from your bank account to sync transactions. This can save significant time and reduce admin work, so you can focus more on growing your business.

Access funds without touching your reserve

Accessing external funds can help you manage day-to-day expenses while keeping your cash reserve intact. A line of credit provides an approved amount of finance that you can draw on as needed, acting as a financial cushion.

This can be especially useful for businesses with seasonal ups and downs, retailers needing to make larger purchases, or hospitality businesses that require equipment on short notice. It also lets you take advantage of bulk deals and other income-generating opportunities without dipping into your reserves, keeping cash available when it’s needed most.

Want to stay ready no matter what the end-of-year throws your way? Discover how Prospa’s Line of Credit can provide the safety net you need.