What is a cash reserve?

A cash reserve is a fund that a business sets aside specifically to manage unexpected expenses or fluctuations in revenue. This financial cushion serves as a safety net, allowing the business to remain operational during tough times without having to rely immediately on loans or credit. By maintaining a cash reserve, the business can effectively navigate challenges such as unanticipated costs, economic downturns, or slow sales periods, thereby enhancing its financial stability and resilience. This practice is crucial for prudent financial management, as it ensures that the business can meet its obligations and continue its operations even during less favorable financial conditions.