WANT AN EASY WAY to stop stressing about payroll and business cash flow? Here’s a quick exercise to create breathing room and confidence in your finances.
Set the right cash buffers: Identify your monthly “nut” to know how much you need in cash reserves. You want 2-8 months of overhead in cash. Anything else should be diversified.
Focus on fixed, must‑pay operating expenses. Don’t include Cost of Goods Sold or nice‑to‑haves.
- Scan your Profit & Loss and Balance Sheet for highs, lows, and trends over the last 12 months.
- Divide annual expenses, such as insurance and dues, into monthly amounts. If fixed operating costs average $25,000/month, that’s your non‑negotiable overhead. Now you can calculate how much you should have in the bank.
Do the math (quick):
Checking Buffer: 2 × monthly nut → 2 × $25,000 = $50,000
Savings Buffer: 3 × monthly nut → 3 × $25,000 = $75,000
Stretch Goal: 6–8 months of total overhead → $150,000–$200,000
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Make it automatic: If you need to build up your reserves, then here’s the plan.
- Find your lowest revenue month from the last 12 months.
- Multiply that by 10% to set a realistic savings goal.
- Divide this by 4 to set up recurring weekly transfers to smooth cash swings.
Now add a simple “top‑off” so savings rise when sales do. At the start of each month, take 10% of the prior month’s actual revenue, subtract what you already auto‑transferred, and move the difference. This lets your cushion grow in strong months and remain steady in lean ones.
Set it up (fast):
Monthly target: If your lowest month was $80,000 → $8,000 (10%).
Weekly automation: $8,000 ÷ 4 = $2,000/week from checking to savings.
Monthly top‑off: If last month’s revenue was $100,000, 10% = $10,000; after $8,000 auto‑transferred, move $2,000 more.
A quick win that compounds: This two‑part plan delivers a fast win: a clear buffer and a reliable way to fund it. Once your targets are in place, keep building for real resilience.
Then redirect the same automation toward your next priority, allowing progress to continue without extra effort. One caution: Cash reserves only hold if you are intentional.
Overbuying inventory can drain even the best cushion.
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