How to Build A “Rainy Day” Fund for Your Business (part 1)

The Nuts and Bolts for Saving Money

 

Last week I wrote about the importance of having a savings, both individually and in business and the high percentage of people who don’t. This tendency to spend everything you have is a problem when the unexpected happens. This isn’t to say that you should put all your money, after paying the bills, in a savings account hoping to retire someday on that savings. What I’m talking about is having money ready for big planned purchases or unexpected emergencies. This way you can use your own money and don’t have to pay someone else to borrow theirs.

Last week I told you about the tool that I use for this, the “Savings Transfer Sheet”. This spreadsheet is easy to use and makes saving simple. What it doesn’t do, is force you save. Maybe I should figure out a way to hook peoples’ deposit tickets up to electricity so that they would get a shock when depositing money without saving.

The biggest problem with saving money is not having a plan to do so. It can be a bit overwhelming trying to figure out how much should be saved when depositing revenue. One of the things that makes it hard is inconsistent amounts. If every day or week you deposited the same exact amount, you could decide once and always put aside a set amount for savings.

It’s rare in business that every job or every customer pays you the same amount every time you do business with them. There are some businesses like lawn mowing, hair cutting, pet boarding, etc. that a preset recurring price has been established, even so the number of recurrences each day or week is going to vary.

The purpose of this spreadsheet is to provide a simple accurate way to know how much money the right amount to save is, regardless of the amount being deposited. The most difficult part is the initial set up. This part requires some research, thought and time.

First – look back through your financial records of the last several years. The more research you do the more accurate your understanding will be of your financial history. Even if you’ve only been in business for a short time it will give you a place to start. This will let you see areas of unexpected expenses as well as dollar amounts.

 

Second – determine what things or areas that need to be saved for. Some examples of what these could be are:

Repairing and/or replacing equipment

Equipment increases or upgrades

Repairing or replacing vehicles

Large building repairs or maintenance items (HVAC, new roof, etc.)

Building or facility upgrades, expansions or purchases

Taxes (income, property, sales, etc.)

Irregular payments (bi-monthly, quarterly, annually, etc.)

Retained earnings (emergency fund because they are going to happen)

 

Third – take the dollar amounts for the different areas that you have determined to be above or outside your normal operating costs and figure the percentage each one is of your net revenue. This will give you a place to start when setting up the “Savings Transfer Sheet” for the first time.

Building a “Rainy Day” savings is critical to the foundation of your business. It is one of the solid cornerstones that will help your business weather the storms of life.

Next week we will go into the “Savings Transfer Sheet” deeper still and see how the information we gathered fits in to it.

 

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