How deep are your cash reserves?

Lets get realistic, you cannot succeed without adequate cash reserves, more money then you projected you need. Not having adequate reserves can prove fatal.
Most entrepreneurs are very capable business owners. They are frequently, incredibly talented, brave, bold, tenacious, committed, focused, and sometimes successful….. many more would be, if they only had enough cash in reserves to cover for unplanned events.

Here is the first problem, the cost of goods, weekly payroll, and necessary overhead line items, comes due prior to the receipt of receivables and if none are available when needed the business begins to implode. This can kill any business, quickly, as you will simply run out of cash and come to a shrieking stop if adequate cash does not exist. This however can be planned for in the original projected cash flow as the timing is predictable thus the investment required can be determined, unless you did not project accurately and few can.

Not enough sales and  you are out of balance.. Not enough revenue means not enough profits, and this will stunt or stop  basic operations. It requires additional cash then what the business has.

Adding pressure and velocity to the situation is being in a growth curve. You must exist  this month on last months smaller sales volume while you try to grow to achieve this months greater sales, thus requiring additional investment to support the growing demand. Impossible without additional cash. Growth can be harder to predict accurately in the beginning thus you need cash reserves to support the real time growth curve.

Then of courser something happens, normal seasonal variations, a bad weather month, a receivable that goes uncollected, a canceled order, a late delivery of necessary materials, all the normal variations of business which upset the cash flow and force you to go off your projected cash flow projections.

Without cash reserves, this will cause a rapid downturn that most small businesses cannot climb out of. The owner begins to stop taking a pay check, buys less inventory, reduces sales and marketing effort and  gets smaller, accelerating the downturn and the cycle continues to erode the possibility of long term success.

The problem is no reserves. No way to handle the unexpected,  the peaks and valleys, normal interruptions, or rapid growth.

It is more then having enough cash to support the original cash flow projections. It is all about having adequate reserves to cover the unexpected or unpredictable.

This can be the difference between success and failure.

In other words, you really cannot do it on a shoe string. A small business must have adequate cash reserves to be able to successfully implement a somewhat unpredictable growth and development plan and to navigate the unexpected.

The reality is far too few small businesses can satisfy this need  and are operating with too little cash reserves  if any, and thus will fail because they run out of gas.

How deep are your reserves?

How much gas do you have in your tank. Enough to get where you want to go? Check it out.