CASH IS STILL KING
No, I don’t see any impending doom in our economy; but lately I have had this topic simmering in the back of my mind. Small business owners have a tendency to do several things when they have a few extra dollars:
- Buy something for the business which they feel it is absolutely necessary, but it isn’t really.
- Buy something for themselves because they earned it.
Is cash really King? Ask any small business owner who does not have any!
The following are a few of Nick’s rules on cash reserves:
- Pick an amount, for example 5% of your gross profit of any income, and put it into a savings account. The Key here is to pretend that that account does not exist. This becomes your emergency reserve. The goal for this account is to have at least a 6 month survival amount; this should include your entire monthly expense budget including your salary.
- Determine the life of your hard assets, i.e. computer, mobile phone, software, etc., and figure out how much money you will need to replace each asset when its functional life is over. Break that down into a monthly figure and put it into a “replacement savings account”.
These first two items are not negotiable. If you can’t afford to do this, then the only solution is for you to increase your sales effort thus increasing your cash flow.
- What you have left is your working “capital”; create a budget that allows you to work and grow your business on the remaining dollars.
- If your hard asset still works, don’t replace it because there is something “newer” on the market. Wait until it is absolutely necessary.
I never cease to be amazed when small business owners tell me they have less than $100 in total liquid assets in their business. The good news it’s never too late to start to run your business as a profit based business. It may require you to work 10 times harder, but it beats the alternative and that is having to close your business.
This subject is addressed from time to time in our blogs, but the importance of this subject requires attention. As members, if you want to do a budget session or want a specific budget format for small business please let me know.
Tips and Advice by Nick Petra, CFP – Founder of BizQuack and StrategicDuck
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