Looking to a banker for a loan when you are strapped for cash is tough. Lenders look at liquidity as a requirement for a loan.
I was the CFO of our family’s residential construction company for over 20 years. There were lean times in construction more than once…many more. In fact, one recession we had a spec house on the market for 22 months! We wanted to sell it so we did not rent it out to cover the payments. (We ate a lot of squash from the garden that year).
It was still brand new when we sold it, for a loss by then, almost two years later. Well, almost brand new. We used the Master Bathroom for the two months we were remodeling the bathroom in our own home. 😉
The I-Cannot-Afford-To-Put-Money-Aside Savings Plan for Business
Put 10% of every dollar that comes in the door into a savings account; every dollar, every check received, when it is received. I know, you think you can’t afford it. Unless you are already behind in bills (in which case you really are not going to interest a bank or credit union in that business loan you covet), you can do this.
It is possible (even probable) you will have to go right back to savings before the month is out and take it back out. But there are those months when you don’t have to. Or when you don’t have to take it all back out.
Slowly, the savings builds up from rediculously small to enough to handle small emergencies. Then to enough to handle bigger emergencies. When it is bigger than that, you can consider using some of it for a major expenditure like website revision or equipment upgrade.
The Budget-for-Big-Ticket-Items Savings Plan for Business
- Add up the major items that are not monthly (eg. Insurance, Continuing Education, Dues, RE Taxes, Software, Small Equipment Purchase)
- Divide by twelve to get the monthly savings needed
- Each month put that amount into a separate savings account
- Move money from that savings account back to checking whenever one of these bills comes due
These ideas work for your personal savings too…
If you do it for the business and for your personal budget, you now have two or more emergency funds. My husband and I have business savings, personal savings, rental savings regular (for taxes, insurance and minor repairs) and rental savings major (for major repairs). And when our son’s were younger, we also had college savings.
Our personal savings covers car/life/home insurance, propane/heating and medical out-of-pocket. It is easier to stash away $750 a month into the account and have it to pull from than to try to cover a major bill.
What other savings strategies have you tried? Did they work?