Building A Cash Cushion

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Monday, November 10th, 2008 Subscribe To Our Feed

Building up a financial savings for your business is never easy. Many experts will tell you that you should have at least six to nine months worth of income put away in a bank. For businesses grossing $250,000 per month, the thought of saving over $1.5 million in a savings account, will either have you collapsing from fits of laughter or from the paralyzing panic that has just set in. If you are just barely making payroll each month, you may need to consider getting rid of any former advice you were following, even if it seemed to have been well advised. So how is a small business owner to even begin a prudent savings program for long-term success?

Realizing that your business needs a savings plan is the first step toward better management. The reasons for growing a financial nest egg are strong. Building up a savings will allow you to plan for the future in your business, this way you will have the investment capital necessary to complete your plans. If you have a source of back-up income, this can carry a business through a rough time.

When we have market fluctuations, like the dramatic increase in oil and gasoline prices; which may start to affect your business, you may have to go into your savings to keep operations running until the difficulties pass. Savings can also support seasonal times for businesses, with the ability to purchase inventory and cover payroll until the flush of new cash arrives. Try to remember that you didn’t build your business overnight and you cannot build a business savings account instantly either.

Make sure to review your books on a monthly basis and see where you might be able to trim some expenses, so you can re-route the savings into another account. This will help to keep you on track with cash flow and other financial issues. While it can be quite alarming to see your cash flowing outward with seemingly no end in sight, it’s better to see it happening and put corrective measures into place, rather than discovering your losses five or six months too late.

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