How to NOT Run Out of Cash in Your Biz

Bookkeeping Tips

How to NOT Run Out of Cash in Your Biz


Heather Pranitis

How to NOT Run Out of Cash in Your Biz

Cash flow is probably one of the biggest challenges of entrepreneurship, hands down. Between paying staff and contractors to ensuring that our own clients pay their invoices, that perfect balance between accounts payable and accounts receivable is tough to achieve. Then there’s the conferences, the tools you need to keep the doors open and (oh, yeah!) paying yourself so there’s some silver lining to your hustle.

Keeping on top of it all is tiring. But it doesn’t have to be. It is possible to master the bank account, even if you’re not “making bank” just yet. What’s the trick? An emergency fund.

Having a ready emergency fund is key to anyone’s financial sanity. But when you have an irregular income, it’s an absolute necessity. Invoices that are due on the first don’t get paid until the tenth, but you still need to get your payroll out on time. Sound familiar?

And then there’s all the things you want for your business but can never seem to budget for. Business coaching. Conferences. A new computer. Client gifts. Referral bonuses. But first, you need to cover the necessities without resorting to the dreaded plastic (and subsequent interest charges).

Here, we look at what exactly should be included in your business emergency fund so you don’t end up in hot water with your staff (or the IRS).

  • Three months of expenses—including paying yourself. Make a list of all your recurring business expenses, including internet, phone bill, subscriptions, website fees, product supplies, payroll, insurance, etc. If you run a brick and mortar business, you’ll want to include utility costs and rent. Then add in your own monthly salary and multiply this total by three.
  • Quarterly taxes. Uncle Sam is going to come knocking eventually. If you’ve been in business for more than a year, you know what that hefty tax payment looks like in April. If you’re not an S Corp, you should be estimating and paying your taxes on a quarterly basis (and S Corps on a monthly basis). Your accountant should help you sent this up, based on your current and projected sales revenue. When you’re paying quarterly, the hit isn’t quite as painful as it might be in April—if you haven’t been planning ahead.
  • Business investment savings. This is where you start to sock away funds so you can grow your business and grow as a business owner. But, of course, this comes after you’re able to consistently maintain three months of expenses and your quarterly taxes in your business account. While investing in your business is a necessity, this would be considered an “extra” after your bills are paid!

Once you’ve done the math and figured out your bottom line for three months of expenses and your quarterly taxes, add in your goal number for business investment based on any conferences or programs you want to be part of in the coming months. The result? The amount that you should keep in your business account at all times. If you start to dip below this three-month emergency number, it might be time to reevaluate your expenditures or your billing terms.

I firmly believe that the #1 way to stay on top of your business bookkeeping is to keep separate business and personal accounts—and to avoid co-mingling of funds at all costs. This is something you should talk to your bookkeeper or accountant about as you’re setting up these accounts. Not sure where to start? Let’s talk! This is the perfect time of year to get your finances organized so you can start 2017 on the right foot.

To get started, download the worksheet below to help you figure out exactly what you should have on hand to protect your business and your finances.

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