Through the end of 2007 and beginning of 2008, we encouraged our clients to “horde cash”. While businesses were still performing fairly well, real estate and associated businesses were being hit. We were encouraging clients to build up cash reserves not due to some “doom and gloom” predictions, but because with cash comes flexibility, and frequently with flexibility comes success.
Here we are five years later and are happy to report businesses are coming back. We are seeing our existing clients perform better than they did last year and are speaking with new entrepreneurs. With this new business hope our advice is start building (or rebuilding) your cash reserve now.
Here are the 3 steps to start building a cash reserve in your business:
Step 1, examine your expenses and get cheap. One of the few positives we saw coming out of the last few years was that being cheap, while not necessary cool, was acceptable. Do not fall in the trap of “keeping up the Joneses”. Now is the time to continue to operate “lean” in both your business and home spending. One practical way to execute this is to respond to our offer to examine your personal spending habits versus the norm in this area. This will give you an idea of how your expenses stack up against others in the area. Step 1, continue to spend as if it were 2009, not 2006.
Step 2, examine how you make your money. Most of us have either multiple product/service offerings or at least multiple clients. Not all products/services or clients created equal. Some will be more profitable than others. It is up to you to know, which products, services, clients help your bottom line the most, then you should make a plan to get more of those clients. If you don’t know how to extract this information from your accounting records, we can help you setup your books in a way that it will provide this information.
Step 3, get a success plan. Notice, our recommendation is not to “create” a budget, don’t reinvent the wheel. Borrow, Buy or Steal a plan that already exists. Articulate what your plan will be and then see how that works out numerically. We all know we need a plan, so why don’t we create one? For business owners that have a large amount of work, they tend to feel they are “too busy”, meaning it will take a lot of time they don’t have. For business owners that are not busy, they simply don’t want to know what their projects look like. Neither are good reasons to continue as status quo. One practical way to get started is to look at your most recent tax return; it breaks down how money was made and spent. How would you like that to change for the remainder of 2010?
We are happy to see business turning around in 2010 thus far. Don’t forget the lessons of 2008 and 2009; build your business’s cash reserve and position yourself for success.
