Can You Survive? Part 1

You know the phrase Cash is King!  Well it’s true.  A cash reserve is the life line of any business.  A reserve is simply the amount of cash your business has in the bank that is not dedicated to any expense. Better known as savings or an emergency fund.  Sadly enough, research shows that the majority of us have enough to last just 2 weeks. While 1 in 5 don’t have any reserves at all.  This leads to my number one question: If a disaster strikes your business, can it survive?  So now that I have your attention, let’s see.

  1. If your largest client goes out of business, or leaves you for another vendor, can you survive? If so, how long?
  2. If your top producer goes to another job, or as my good friend Kat say’s gets hit by a bus, can you survive? If so how long?
  3. What if sales just go flat for a period, can you survive? If so, how long?

All of these are important questions, which a business owner should answer.  What other risks are you open to and how could a cash reserve help you mitigate the risk?

Visit us at www.mylocalcfo.com for assistance in building your reserve.

Written by: Derrick James (My Local CFO)

 

Can You Survive? Part 2

In part one of this blog we discussed the importance of having a cash reserve and posed questions to help you evaluate the risk in your business.  Now that you are aware of needing a cash reserve the question becomes; how much reserve should I have?

This depends on your business.  Some experts say the bare minimum of 10% up to 30% of revenue.  Others say 3 to 6 months of operating expenses.  I tell my clients, however much allows you to sleep peacefully at night knowing that if the worst case happens you can survive.

So how do you build a cash reserve? Here are a few ways:

  1. Increase your billing rate. A slight increase in your billing rate normally does not bother customers if you are performing at a high level.
  2. Increase your sales. Obtaining more business while keeping fixed expenses the same can also do the trick.
  3. Reducing your expenses. This is usually a tough one but perform an analysis on your spending, you might be surprised.
  4. Manage your debt. You may be able to consolidate debt or negotiate better rates.
  5. Tighten up your invoicing process. You should invoice timely, possibly charge late fees, review any accounts past 45 or more days and/or consult with a collection agency, as well as get a deposit on large orders or projects.

Visit us at www.mylocalcfo.com for assistance in building your reserve.

Written by: Derrick James (My Local CFO)