I recently checked in with a client on “How’s the savings going?” Mind you, when I first met this client just about three years ago this client had not only no savings, but was habitually running a little short. In fact credit cards, unpaid vendors and even tax agencies were running a debt total of $1,500-$6,000 generally. The business was fairly healthy, but always running into growing pains, and mis-estimations that resulted in no nest-egg getting built. So, we started small, and calculated just $50/week to move from checking to savings each week. The small steps became habit, and even easy. Then, step by step we moved the amount up from there. Now three years later, my client has nearly $100,000 in the savings account, debt paid off, and a whole different look at the business.
Another client, service business, in the $1.5 million a year range smartly got a business line of credit to use for the two times a year when there are 3 payrolls in a month, and to frontload expenses when taking on a new large client. Religiously this client would pay off the draw on the line over 2-3 months following tapping it. Over time the client started to grow (over $3 million) and renewing the line of credit became more challenging as the infusion of payroll and new client startup costs became larger and were exceeding common business line of credit financier comfort levels. We made a goal to build a savings to eliminate the need to this temporary credit tapping by building a large savings. In one year the owner stock-piled enough savings to no longer be dependent on the savings.
A business should “fuel you” and NOT “drain” you. Make a plan to build your business savings…
Decide – Your first step is to decide that you are going to save money. The shift you will feel when week after week you are building something (instead of running in place), is extremely empowering.
Know What Kind of Savings – “What Kind of Savings? Isn’t there just one kind?” Not really. As business owner there are several types of savings that will help you feel secure about the asset you are building. Three of the basics are your “rainy day fund”, your “emergency fund” and your personal savings fund. Your rainy day fund is savings you set aside for additional payrolls, bonus payouts, worker’s comp deposits, extra labor to float you while you start a big project and other amounts. Your rainy day fund is fluid. You will fill and use it, fill it and use it, and repeat. Your emergency fund is a large chunk of savings set aside for your next major weather emergency, extra help during a personal medical emergency, or other catastrophic event. And your personal savings is savings you set aside for your retirement, a vacation, a real estate investment or anything else that makes drama-preneurship worth while.
Have a Target – It’s nearly impossible to achieve a target if you don’t know what it is. Determine how much your savings goal is right now. Download my free savings planner to calculate some suggested target goals.
No excuses “I can’t afford it” – People often start with the concept that they cannot afford to save, and that really delays getting started. Start very small. Remember my client at the beginning of the article started with only $50/week. A good way to start is to gain just a couple of new recurring clients and direct that profit immediately to your savings before it gets swallowed up with other things.
Be Reasonable and Don’t Run Yourself Dry – The opposite problem of saying you can’t afford it, is to over save, and starve yourself of money you need to operate. That is just as big of a sabotage as not saving enough because you are very likely to abandon the plan if you can’t pay your bills due to over-paying savings.
Automate – Make your saving automatic. Setup your savings account to link to your checking and have it automatically come out on a regular basis. Also we recommend the more frequent the better. If you are a bi-weekly payroll company, for example, in your non-payroll weeks (twice a month) have automatic drafts move money to savings.
Squirrel Away Wind Falls – If you get any unexplained wind-falls tuck those away in savings. You can always spend it later. We have a rule around here that we spend 20% of all windfalls, and save 80%.
Stick to the Plan – Have faith in the practical plan you have made and stick to it!
To jumpstart your savings plan this year. I have made our Savings Planner available to you on pdf. Click to download and make this the year you change your business!