A “Rainy-Day Fund” Can Help Keep You Afloat
Recently, I’ve had a couple of conversations about business finances and how, when done poorly, they can cost a business money … sometimes to the point of going out of business. Money management is critical to a successful business.
One of those conversations was with Scott Cragg from Burrows Post-Frame Supply in Ft. Gibson, Okla. Scott reached out and invited me to be a guest on their podcast to talk about what leads to business success and what to avoid that leads to failure. Part of that discussion centered around business finances. Burrows is actively working to help their customers build more successful businesses.
It’s common for people in business to spend everything they make and not save for future investments or emergencies. For the most part, as a society here in America, we have become comfortable. There will be more, right?
We have forgotten how important it is to save money.
There have been times throughout history when things weren’t so good financially— like the Great Depression of the 1930s. Enough time has passed that, for most people, it’s become a distant memory. If you have ever talked with someone who went through the Depression or a similar experience, you know saving money became more than something that needed to be done…it was the difference between life and death.
As reported in Zippia, 42% of Americans in 2022 had less than $1,000 in savings, and 10% didn’t have any. Businesses aren’t doing any better, and saving is every bit as important.
Part of a solid financial plan for any business includes saving money for irregular and unexpected expenses.
We get so focused on the day-to-day operation of running the business that we neglect to intentionally plan for “rainy days”— things like equipment maintenance and repairs, building upkeep, quarterly and annual taxes, and other irregular payments.
When I started doing construction work, I learned the skill of building from some of the best craftsmen. Later, when I went into business for myself, I thought I knew everything that I needed to be successful. The problem was, while they taught me how to build a solid structure, no one taught how to build the business.
Early in my business career, I learned one of those business building lessons the hard way— the importance of saving money.
I was working hard to keep construction moving forward: materials figured and ordered, suppliers paid, subcontractors and employees organized, and everyone taken care of. Things were going well, and there was even some money left over, so naturally, I spent it.
Then it happened.
My accountant showed me how good my year was by telling me how much I owed in taxes.
How was I going to pay them? I didn’t have that kind of money. What was I going to do? Borrow the money or make payments to the IRS?
The tuition to the “School of Hard Knocks” is expensive.
The question then became: How am I going to keep this from happening again?
Some time before the income tax situation, my wife and I learned about Dave Ramsey and his Financial Peace Program. This program teaches a common-sense approach to saving money and explains why it’s so important to do so. It worked great for our personal finances but wasn’t an exact fit for the business.
So, using the basic principles from Dave’s personal savings plan, I designed and developed a business tool to help me save money for the business. That tool became the Savings Transfer Sheet— a simple spreadsheet that, with a few simple entries, calculates the amount that needs to be separated from gross revenue and saved. That money can then be placed into a separate checking account, savings account, or even turned into cash and put in a safe.
This prevents saved money from accidentally being spent on the wrong things.
When it rains, it pours, and this can easily sink a business. That’s why having a rainy-day fund can keep your business afloat. A tool like the Savings Transfer Sheet can prevent the need to borrow money or, worse, go out of business.
You can get your own Savings Transfer Sheet and other tools in the Business BUILDing Toolbox. Find out more about our coaching and consulting here or schedule a free 30-minute consultation to get started.
