What’s the 1st thing you are supposed to do when you start a household or a business? Set up your, Emergency Fund! While running a home and a business have some similarities, their emergency funds differ greatly in content, calculation, and performance. Everyone knows that the general rule of household budgeting says that you’re supposed to have at least 3 months of emergency cash! If your household overhead is $4,000 a month, you need to have $12,000 of easy access cash that you are never going to touch unless an emergency arises. 30 day billing cycle, 30 day income cycle, easy peasy, right. If for any reason you are not paid on time, the department of labor is there to make the employer pay you.
Now the business emergency concept. You still have to pay the bills every 30 days but some billings, contracts, and invoices can take up to 90 days to pay in full. If business overhead is $20,000 a month, then the emergency fund is 3 months overhead plus the average billing/contract cycle. If it takes an average of 90 days for all payments to come in then you need 3 months overhead and 1 full billing cycle. 4 mos, 5 mos, or . That’s 6 times $20,000 or $120,000. Your business needs to have $120,000 worth of emergency credit that you will never touch unless an emergency arises!
So there it is. For your home you need emergency cash. For your business you need emergency credit! Sometimes we get distracted or forget… The goal, the rule, and the joys of home, come when you use cash and very little credit! The goals, the rules, joys and safety of business come when you use credit and very little cash. Use cash for the things you intend to keep, and credit for the things you intend to sell!!!
So far we’ve only talked about emergency money! What about growth, expansion, renovation, safety, and risk.
1.) Are you making the most of your current location? Signage, seating, inventory? Have you opened enough locations to capture all the opportunity that this and the neighboring markets can bear for the service or product you provide?
2.) If through no fault of your own, the money in your business accounts got siezed, frozen, or stolen, could you retain an attorney, run your business, and maintain your current lifestyle on revenue alone for 45 – 90 days?
3.) If something drastic happened to your consumer credit, have you made sure that it would have no affect on your business? If something drastic happened with your commercial credit, have you made sure that it would have no impact on your home?
Way too often we tend to run our business like we run our homes. RCI has the right answers to some tough questions! Creating more credit than a home could ever want and need is doable. Creating more credit than a business could ever want or need is just ridiculous! Size of the home or business doesn’t change anything!!! Emergency Funds for home and business are evidence of financial involvement and risk management! We would use credit cards for a home emergency! Why not your business? RCI can show you the interest free way to establish commercial credit? Need money now or in the future, call for a free no obligation consultation. 804-426-6058