Businesses fail from a lack of cash, not a lack of profits. Put some cash in cold storage during the good times. Keep a savings account equal to 3-6 months of your expenses to survive the tough times and be ready to capture opportunities during good times.
Businesses fail from a lack of cash, not a lack of profits. Cash is like food. You don't think about it much until you don't have any. Then it's all you think about.
Think of your checking account as the refrigerator where you store cold, hard cash. During good times, your customers are constantly restocking your fridge with cash. If you're too hungry for growth, you eat everything in the fridge. In a downturn, your customers stop stocking your fridge. Now you have to ration your food, which may not be enough to keep you fed.
Put some cash in cold storage during the good times. Keep a savings account equal to 3-6 months of your expenses to survive the tough times and be ready to capture opportunities during good times.
Moving cash from your checking account to a savings account in good times is like taking extra food from a full fridge and putting it into the freezer. When the fridge is running low during a recession, you can thaw out the cash in savings to keep yourself fed.
I remember saying this to a group of small business owners in January 2020. None of us could have anticipated what was coming with COVID. I hope they were ready with cash and are still doing well today. Last year it was COVID. In 2009-2010 it was the Great Recession. Things get tough every few years for a variety of reasons.
I wish you cash to keep you fed in lean times. I wish you well.
- Rob Stephens
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