Importance of Saving Money As A Business Owner
How awesome is it to get a 5 figure payday as a Pittsburgh business owner?!
You've struggled, been rejected 100 times, been burned by people, worked late into the night, and you finally get a few wins! That money starts stacking up and you have your best month ever. What's the next move? Bottle service at the club? New car? New watch? Vacation for the rest of the month?
While it is tempting to splurge after a few big wins, it's important to be extremely conservative with your spending as a Pittsburgh Business Owner. There's no better feeling than all your hard work paying off, but it doesn't mean it will be good forever. In business it's important to be almost negative in considering the outlook of your company. Expecting and planning for the worst gives you a huge advantage.
Many people are overly positive on their abilities and how much they can do in one years time. They assume that success will continue, nothing will change, they have all the control, and money will keep pouring in. The problem with that is EVERYTHING changes! Something can change in the next days that completely flips your business upside down.
- Interest rates change making your product less desirable
- Some scientist writes a report that the food you serve at your stand leads to cancer
- Legislation changes and certain automobiles can no longer be sold or used due to pollution
- Facebook decides there are no more targeted ads
- The stock market crashes because of a trade war with China
The list of possibilities goes on forever! There are a lot of variables that come into play as a business owner in Pittsburgh. While a lot can be controlled, there are many more components that you cannot. Things can be going spectacular and then something out of your hands can happen that cuts your sales in half. These are very real occurrences, which is what makes business so difficult. As a financial professional in Pittsburgh I see it all the time. Businesses get over leveraged, or spend money like crazy, or think good times will last forever. Then they are frantically attempt to keep things afloat as soon as an unexpected problem pops up.
Saving 15-20% of the profits is a great rule of thumb. This will always provide additional working capital to grow the company, but more importantly it will allow for a safety net if things go wrong. If that unexpected $10,000 expense comes up, you'll have it available in cash. It won't be a happy day, but it won't put you out of business!
Luckily, money stretches pretty far in Pittsburgh, so you can be strategic with the savings. The more capital intensive your business is, the more you should set a side. Service oriented industries generally require less capital, so maybe the emergency fund would be less for these businesses. Industrial and real estate businesses require tons of capital. These businesses in Pittsburgh would most likely require additional cash savings just in case.
"Revenue is vanity, profit is sanity, but cash is king"
Make sure you are managing your business properly with a free consultation from Doug Raible https://www.thepittsburghinvestor.com/services