Setting Up a “Rainy Day Fund” for Your Business
Currently it is common for people to spend everything they earn and not save anything for future investments or emergencies. For the most part, as a society here in America we have become comfortable. We have forgotten how important it is to save money.
There have been times through out history when things weren’t good financially, i.e. the Great Depression of the 1930’s. Enough time has passed since then, 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, saving money was more than something that needed to be done, it often was the difference between life and death.
As reported in a Market Watch post* from December 2015, approximately 62% of Americans personally have less than $1000 saved and 21% don’t have any savings. Businesses aren’t doing any better and it’s every bit as important. Part of a good business financial plan includes saving money for those irregular and unexpected expenses.
Just like in our personal lives, in business we get busy with the process of daily living. We work hard at the normal operation of the business and we neglect to intentionally plan for those “rainy days”. Things like; equipment maintenance and repairs, building maintenance and repairs, quarterly and annual taxes, irregular payments, etc.
When I started doing construction work I learned the skill of building from some of the best craftsmen. When later I went into business for myself I thought I knew everything that I needed to be successful. The problem is that while they taught me how to build a solid, well built structure, they neglected to teach me how to build a business that way.
Early on in my business career one of those business building lessons learned the hard way, was the importance of saving money.
I was working hard to keep construction moving forward. The material figured, ordered, and suppliers paid. The subcontractors and employees organized, having what they needed and paid. Things were going well and there was even some money left over. So, naturally I spent it. Then it happened…the 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? I was going to have to make payments. Just so you know, tuition to Hard Knocks University is high.
That’s why over the last 35 years of learning lessons the hard way I designed and developed a system to help me avoid pitfalls. I needed to find a way to separate money that would be needed later. How was I going to do it? Several years ago, my wife and I found out about Dave Ramsey and his Financial Peace Program**. It is a program that teaches you to, “Live like no one else, so that later you can live like no one else.” The very first lesson he teaches is “Super Saving”. It is a common-sense approach to saving money and the reasons it is important to do so. This was great for my personal finances but wasn’t an exact fit for my business.
So, using the basic principles of Dave’s plan for personal savings I began working on a way to do the same thing in my business. The “Savings Transfer Sheet” is the result and a small piece of the bigger Business Blueprint puzzle. The “Savings Transfer Sheet” is a simple spreadsheet that with a few basic entries will give you the dollar amount that needs to be separated from any received gross dollar amount. That separated money can then be put into a different account or turned into cash and put in a safe. This way that saved money won’t accidentally be spent on the wrong thing.
After talking with a lot of different business owners I realized that every business could use a solution like this. That’s why in the next few weeks we will be making available a free downloadable “Savings Transfer Sheet” including instructions.
Next week I will go into more detail about the “Savings Transfer Sheet” and how it can help you solve your business money problems.