Are you ready to handle emergencies? How much money have you saved up for unexpected situations?
We all know that money isn’t everything, but it does hold a significant place. After all, America is a great place to live, but it can be expensive. So, the question is, how much money do you have saved up for your business? Money alone isn’t enough to survive setbacks. Having qualities like grit, character, and initiative would be best. However, let’s focus on money for now. Imagine you’re a contractor in New Orleans, and your shop and trucks get flooded. This unfortunate situation may not be a fantasy for some. Are you prepared to weather the storms for those who haven’t experienced such setbacks, or would you rather be highly prepared?
When a wealthy person loses possessions or their yacht sinks, it may not affect them as severely. Tragedies are easier to cope with when you have money and insurance to compensate for the losses. I once had a boat sink, but State Farm promptly provided compensation that even exceeded the boat’s worth, covering recovery costs and other items.
Now, let’s shift the focus to your five-person business. Whether it’s flooding, a change in the economy, or employees leaving to start a competing company, setbacks are inevitable for anyone striving to get ahead. How much money or insurance coverage would ease the burden until you could recover?
Considering the payroll and overhead costs, your monthly breakeven point is $41,000. Maybe having a cash reserve of around 10% of your annual expenses, like $75,000, could provide security in such times. However, we understand that setting aside that much money may not be feasible for most small businesses. But don’t change the goal; keep it challenging. There may be alternative options if you don’t have a cash reserve. You could talk with your insurance provider, discussing your financial preparedness and exploring potential coverage options. While the cost may not be ideal, it’s still more reasonable than having a large sum of cash on hand. Ensure there are no loopholes in your policy by carefully reviewing it, as I did with my boat insurance.
It’s crucial to have an insurance agent you trust; someone experienced who can guide you through the process.
Now, let’s return to the idea of saving cash.
Two close friends of mine started saving business money from day one. Both are electricians, but that’s beside the point. They never touch the money they’ve set aside.
One friend always keeps $75,000 in cash for emergency savings and never spends it on anything else, not even necessary tools or equipment. The other friend has invested in commercial and residential properties over the years, having hundreds of thousands of dollars available at all times. He even keeps $20,000 in a briefcase close by.
On a more extreme note, I have another friend who had $1,000,000 cash in a briefcase in case he needed to disappear. He, too, was an electrician. These three individuals have remained financially prepared throughout their careers, unwilling to be caught off guard by a crisis. Now, it’s your turn.
Planning and preparing is essential to run a business to make a profit and support your family and employees. Profitability is the ultimate measure of business success, so if something is wrong, fix it before the storm hits. Let’s start taking steps to prepare ourselves. If you know someone in trouble, consider sending them assistance. And remember, work on your boat so it stays afloat when the waters rise.
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