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I hope that you are finding yourself in a productive mood today and are crushing allthethings today.
One of the things that I love about my job is that I can work with all kinds of businesses and see how they operate and learn from them. One of the biggest regrets/struggles that I see small business owners have is their cash and specifically, not having enough of it.
Really, there are three main times that you need extra cash flow that you should have money set aside for.
- Taxes. If there are only two things guaranteed in life, it’s death and taxes. You should be setting aside 15-25% of your net income to cover taxes in the spring. If you are a sole proprietor, then those taxes are paid in all year long! Don’t be surprised when Uncle Sam wants part of your hard earned money. I highly recommend setting up a separate bank account to save for taxes that way it’s not temping you in your operations account.
- Emergencies. These will happen, even in business. If you do all of your work from a computer and a computer crashes, what will you do? Take out a loan? Bad idea! You’re paying interest on something that is going down in value. Will you borrow from your family’s money? NO! That’s not fair to them and will put even more stress on you. I would recommend seeing how much it would cost to replace your most important equipment and having enough to pay for those in case something goes wrong and breaks.
- Profit. This is a fun one 🙂 If you are a sole-proprietor, then everything flows to your personal return. Why not set aside money to make sure that you are rewarding yourself once a quarter? You can’t possibly be paying yourself enough for all of the things that you do that aren’t directly related to your business. For me, I own a bookkeeping company. The profits cover my time to write these blog posts, update my website, post on social media, make deposits, do my own bookkeeping, plan for the future, be the sales department, be the marketing department, take time to read books for the business, answering emails, and so on. Before becoming a business owner, I had no idea how much goes into just running the business. Profits are your reward.
Last spring I read a book called Profit First that totally changed my mindset on cash flow. Any business can use this method, and should use this method! I can’t recommend it enough. They go more into details on what you should be saving for and how you can maximize the profits in your business without totally crushing the entrepreneurial side. You can pick up a copy here (Profit First) or at your local bookstore!
Do you have money set aside for these events? Let me know in the comments!