Working Capital

Jamin_Mayer

Jamin_Mayer

Location
Longmont, CO
I just saw a pole on a news website asking about personal savings... It made me wonder about working capital for a business.

I gotta admit. I hardly ever have enough working capital.

It seams that every time I make some progress, some sort of crappy unexpected expenses come up and I drain my working capital.

Any body have suggestions? Tricks?

thinking.gif
 
Set up an automatic direct debit from your everyday business account to pay 5-10% of your weekly turnover into an account you dont have instant access to. By that i mean no eftpos card or internet banking. You have to go to the branch to draw funds.

By making it automatic, you wont miss it. Ever notice how you always just have enough to deal with whatever you need to deal with??? Whatever you have after the automatic saving just becomes the new normal.

You will soon build capital or have a cushion account.

It would be ideal to have 3-6 months of basic operating expenses as a cushion.
 
FWIW check out Dave Ramsey . Though he deals primarily with personal finances the principles will work for business.

Since we started using his ideas we've been able to set aside enough cash this year to begin a great capital fund as well as a self insurance fund to cover a larger deductible that, in turn, has lowered our insurance costs too.

But most of all, dont' forget that your Capital reserve fund needs to be a funded budget item included into your pricing.

We set aside our cap and deductible funds at with each payroll. I figured if we had to set aside witholding taxes why not our capital reserves, insurance premiums and our deductible funds.

Funny thing happened since starting that, we have cash in the bank at the end of the year!
 
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Set up an automatic direct debit from your everyday business account to pay 5-10% of your weekly turnover into an account you dont have instant access to. By that i mean no eftpos card or internet banking. You have to go to the branch to draw funds.

By making it automatic, you wont miss it. Ever notice how you always just have enough to deal with whatever you need to deal with??? Whatever you have after the automatic saving just becomes the new normal.

You will soon build capital or have a cushion account.

It would be ideal to have 3-6 months of basic operating expenses as a cushion.

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Well said! I completely agree! Auto debit is the way to go...
 
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Set up an automatic direct debit from your everyday business account to pay 5-10% of your weekly turnover into an account you dont have instant access to. By that i mean no eftpos card or internet banking. You have to go to the branch to draw funds.

By making it automatic, you wont miss it. Ever notice how you always just have enough to deal with whatever you need to deal with??? Whatever you have after the automatic saving just becomes the new normal.

You will soon build capital or have a cushion account.

It would be ideal to have 3-6 months of basic operating expenses as a cushion.

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who would i talk to if i wanted to set up a auto debit from my bank account to this other account your talking about?I think every bank on the planet gives you free internet banking,you could turn down the debit card and checks though.Who would be in charge of sending your 10% every week to the other bank account?I dont know if im being clear enough but the bottom line is,i don't understand the logistics of it.
 
You could set up an account and not enroll it on the online banking.It could be totally seperate from the other accounts and just set up the auto debit with your banker.OUt of site out of mind.
 
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Yep. F.P.U. is a good program Rick. I went through it and I'm still in the "debt snowball" stage.
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Me too, guess I'm not going to be in the same league as the 18 monthers. We're gonna be more like the 36 monthers.

Funny thing is I have tried to run the business by that model for about 10 years. The only problem being I've had a non-participant on the home finances and I've always had to raid the business to fix the personal finances.

Now that the other signator on the house finances has been through FPU it appears they have seen the light!

Least now both home and business can stand on their own and grow for a change!
 
The bank told me,i would have to transfer the 10% every week myself.They don't have a program in place that does that.I called 3 other banks they said the same thing.If i have to take the time to do it,that kinda defeats the whole purpose right?
 
Look at this years gross revenues say its 500k-so project the same earnings for next year.You figure thats an average of 10k a week so have your bank deduct 1k a week from your account.That wont deduct percentages but the will do fixed numbers.
 
Or if things are slow right now just make it 5 percent,so just have your bank auto transfer 500.00 instead.when things pick up in the busy season bump it up to whatever your comfortable with.
 
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Now that the other signator on the house finances has been through FPU it appears they have seen the light!

Least now both home and business can stand on their own and grow for a change!

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Boy I wish I could get the other to understand the concept. Ive listened to dave. He makes alot of sense. When I was single I did most of that before i ever heard him. Maybe I should record it and play it at night for subliminal messages
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The bank told me,i would have to transfer the 10% every week myself.They don't have a program in place that does that.I called 3 other banks they said the same thing.If i have to take the time to do it,that kinda defeats the whole purpose right?

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Yeah like jimmy said. I didn't mean the bank would figure your %, but you decide the amount & set it up as a recurring payment.

You probably already have some expenses, bills, loans etc that are paid automatically by direct debit every month, same thing.

If you have internet banking you might even be able to set it up yourself.

Things might be very different in your part of the US to where i am in Australia, but i can just do a transfer online for the amount i choose & set as recurring payment & choose the frequency, eg weekly/montly etc.
 
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The bank told me,i would have to transfer the 10% every week myself.They don't have a program in place that does that.I called 3 other banks they said the same thing.If i have to take the time to do it,that kinda defeats the whole purpose right?

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My thought is that it is a lot harder to come up with the money to set aside, than it is to click, click, click...transferred...done.
 
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Now that the other signator on the house finances has been through FPU it appears they have seen the light!

Least now both home and business can stand on their own and grow for a change!

[/ QUOTE ]

Boy I wish I could get the other to understand the concept. Ive listened to dave. He makes alot of sense. When I was single I did most of that before i ever heard him. Maybe I should record it and play it at night for subliminal messages
girlshit.gif


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Don't want to discourage you there big guy but it took me 27 years to get her to start thinking right. Even then, I had nothing to do with her changing her ways...
 
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My thought is that it is a lot harder to come up with the money to set aside, than it is to click, click, click...transferred...done.

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That's sort of my thought too Sean. It's competitive here.
 
Jamin-

I started our plant health care program about five years ago. We don't do a ton of sales in plant health care, but we send our contracts out Jan 1 offering our clients 10% off if they prepay for the season. We get about half of our gross sales in. I will usually buy all my phc supplies for the year with that, put a couple of weeks of payrole aside and use the rest to pay off a loan. Phc helps in that regard. also your entry costs are small. I hear you about the starting capital though. I'm faced with the same thing. we have to rely on financing for equipment and it seems that cash is tight all the time. This year i am budgeting to put some more money aside. Part of it is that this is a difficult business to make money in.. At least that's my opinion.

Good luck!
 
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