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How cash reserves can better support retail growth
Discover smart, low-risk ways to make your cash reserves better support your retail business growth.
Read time: 3 mins Added: 27/10/25
Most retailers know the value of setting aside financial reserves as a safeguard against the unexpected. Whether you call it ‘rainy day money,’ a ‘cash cushion’ or a ‘contingency fund,’ the idea is the same: a safety net that brings peace of mind in the event of quiet trading spells, unexpected bills – or perhaps even sudden opportunities you wouldn’t want to miss out on.
Certainly, in today’s retail climate, where margins are squeezed by higher rents, increased utility bills and shifting consumer habits, every pound must pull its weight. In 2024 alone, the UK lost an average of 37 shops a day1– the majority of them independent retailers.
A cash reserve equal to six months of operating costs is widely considered a sensible benchmark for small businesses. A recent survey from the Office of National Statistics2 found that only 26% of UK small businesses currently exceed that target.
The hidden cost of idle cash
While it’s good practice to keep funds in reserve, holding them purely in cash is quietly costly3. With UK inflation currently at 3.8%4 (Sept 2025), idle funds will lose value in real terms.
Every month that those funds sit untouched, their purchasing power erodes a little more. So, what buys £100,000 today might only stretch to £96,500 a year later. On paper, the balance looks the same, but in real terms, the business will be losing out.
The traps to avoid
- No financial reserves in place. Operating without any backup funds, leaves businesses vulnerable to unexpected drops in sales or rising operational costs.
- Keeping reserves in low-interest accounts. While some return is better than none, you could be missing out on potential growth.
- Not regularly reviewing reserve levels. It’s important to monitor how much you’re holding in reserve and what those funds are earning. This helps you ensure you have enough to keep the business resilient without tying up so much that it constrains day-to-day operations.
Five tips to make your cash reserves work harder
Retail can be quite a seasonal sector, where ups and downs in demand have shown the value of keeping a reserve fund.
However, while holding reserves is good practice, leaving them idle isn’t. So, whether you’ve set aside £10,000 or £100,000, here are five practical strategies to ensure that these funds fully support your business.
- Move to accounts with competitive interest rates
- Consider fixed-term deposits
- Cash flow tools for those building reserves
- Reduce high-interest debt
- Reinvest in your business
A simple switch from a low-interest current account to a business savings account can help your reserves grow without adding risk. For example, Lloyds’ Business Instant Access Account can earn you interest while still providing access to your funds.
If you’re confident you won’t need to access all your reserves right away, a Fixed Term Deposit Account from Lloyds can be a smart option. You get higher returns in exchange for locking in your funds for a set period.
If you’re looking to build up your cash holdings, Lloyds can help in several ways, including Overdrafts, Invoice Finance and Business Credit Cards. Find out more in our guide: 9 ways to improve cash flow.
If you’re holding surplus cash, you should use some of it to pay down expensive loans. These loans often carry interest rates higher than inflation, so reducing them can give the business greater financial headroom.
Investing in equipment, stock, or even marketing, can boost efficiency and revenue while also making your business more resilient.
Effective reserve management is not about squeezing every pound
The goal is to maximise the value of what you have. Don’t let these funds sit idle – make sure they contribute to both your security and your future growth. With effective cash management, your safety net can be an asset that supports your business beyond the rainy day.
Key takeaways
- Ring-fence your emergency fund – aim for the recommended six months of business expenses.
- Regularly review where you keep your reserves – and make sure they are diversified to minimise risk.
- Put any surplus cash to work, whether through debt repayment, reinvestment or higher-interest savings.
You may also be interested in
1The Guardian, The UK lost 37 shops a day in 2024, data suggests.
2Office of National Statistics: Business insights and impact on the UK economy: 3 July 2025.
3IFA: Why holding too much cash could be costing more than you think.
4Reuters, UK inflation rises to highest since January 2024, renewing focus on BoE rate cuts.