There have been many different books over the past couple of decades that talk about paying yourself first to instill good habits of personal savings. I think the rule of thumb has always been to have 6 months of personal bills in savings before you start investing, etc.
But, what about in your business? It feels like the opposite advice is plastered all over the Internet, news, etc. In business, it is all about venture capital, angel investors, and SBA loans.
It is written, build your business on other people’s money. This is not as easy as it sounds. First, you have to find someone who will invest in your business or lend you money to start it.
And, don’t forget, you do have to pay it back. The concept of building your business on debt basically starts you out running fast to create cash to pay back everyone. It doesn’t feel so much like your own business, then.
Regardless, if you are a small business owner, having capital to operate is essential. The amount of cash in the bank is the KEY indicator for most of us as to whether we are doing okay. I believe that we need to have real financial statements and accurate and regular reporting of our true financial performance, however, we also need liquidity…aka, cash.
Having money in the bank is the best anxiety reducer for business owners. I admit, even though I have a finance degree and an MBA, when my business checking account is low on funds, I get nervous. I could have strong sales growth and no debt. I could be adding clients consistently, but if the bank account is low, I switch into scarcity mode.
I see it all the time in other businesses, too.
The Benefits of Business Savings
The business owners with savings have many apparent benefits:
- They know they can weather economic storms that inevitably come. Whether it is the nature of your business (i.e. oil and gas, real estate) or just an overall recession, those with savings can usually make it through.
- They make better business decisions. If the business needs a new piece of equipment to be more efficient in their operations, they will purchase and gain the benefit. When we are short on cash, we wait. Even if the efficiency will create more profit. We don’t want to let go of the scarce resource of cash or we can’t because we don’t have the money.
- They are more consistent. They continue to operate based upon their values as business owners and Christians. They treat their employees, vendors and customers based on their values, not based upon the balance in their checking account.
- They are much less stressed. Right or wrong, we feel better with money in the bank. We know our business will live another day to improve operations. We know we can keep all our employees. We know we can pay our vendors.
I don’t want this post to come off as hypocritical. As a Christian in business I do not think that all we should do is care about money. I just believe that to focus on the business we must be well-capitalized. This is more about good stewardship and wisdom in business.
We need to save enough to be able to meet our business obligations should something unusual (or in business, more usual than we would like) happen. If we had 6 months of our monthly fixed expenses in savings for our business, like we believe we should have personally, wouldn’t that reduce a significant amount of stress?
We are all in different places right this minute. Some of us have just come off of an excellent year and have good cash balances. Others have always been pay-as-you-go and have managed on limited funds. It doesn’t matter where you are. You can only change the future.
We can all start saving and we all can begin to understand our own savings needs to cover our obligations and to reduce our stress. One month in savings is better than none.
Why? (As my three-year-old granddaughter asks 20 times in every conversation.)
Because as Christians in business, we owe it to our family, our team, our vendors and our customers to ensure good stewardship and consistency in our business practices, ethics, and leadership.
I am going to practice what I preach. I am going to build up savings in my business. (Yes, I know about the taxes we will have to pay.) I was a little over-zealous in our recent office expansion, assuming it would just go to taxes anyway. I also know there is a good balance. We grew so much in 2016 that we needed to expand. That is exciting. I also know that I am just like everyone else and feel more comfortable with more savings.
I would love you all to join me. Whether you can put away $100 per month or $10,000, it doesn’t matter.
The goal is to be consistently building up liquid savings to meet your goals to keep your business stable and strong.
I need about 3 more months of fixed expenses to ensure good, consistent operations. Share with us your savings goals so we can all help encourage you, too.
I LOVE this idea and am going to do my best. I will start by setting a goal of $100 per week for long term savings. I already set aside $725 per month in a separate savings account for my quarterly withholding and sales tax so that when I look at my checking balance, I do not overspend.