Your Favorite Orange County Bookkeeper’s ask: Does Your Business Have a Safety Net?

money-safety-net

Patty Hansen

One of the most important parts of managing a business is making sure there is enough cash to keep the business running.  As a business owner, you probably have an idea how much cash is in the bank at any time. The smaller your business, the more likely you are to keep an eye on cash.

Checking your cash balance should be a daily function. Yet, many business owners do not spend enough time on an often-overlooked responsibility. Managing your future cash, especially in light of unplanned situations. Looking ahead helps reduce your business risk and allows you more time to correct any upcoming dips in your cash balance.

Having enough cash is vital to having a safety net for your business. It can sometimes even mean the difference between staying in business and going out of business. Below, Your Favorite Orange County Bookkeeping Service has listed a few different methods to help you plan how much you might need for your safety net.

One way to plan your safety net is to assume worst-case scenario. How long would your cash last if you had no revenue, but all expenses kept going out? Here are questions to help you evaluate:

  • At what point will your cash run out? How many weeks or months of cash do you have?
  • Do you have a line of credit open at a bank?
  • Do you have other loans or sources of cash that are accessible in case of emergency?
  • What expenses could you eliminate without hurting your business if you had to?

Another way to plan your safety net is to do what the average business does: acquire the amount of cash you need to sustain business operations for 2-3 months and keep it on hand.  Alternately, you can make a plan to liquidate that much cash quickly and only put your plan in place if it’s needed.

An easy way to get these numbers is to look at your bank statements in conjunction with your average accounts receivable and accounts payable balances. Feel free to contact your local Orange County Bookkeeper’s at Team One Accounting and we can help you figure out a safety net plan that will keep your business at low risk.

Once you have a safety net in place, you’ll gain peace of mind for your business.  It’s one step in an overall disaster preparedness plan that you can make for your business.

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