How Much Cash Does Your Business Need On Hand?
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Gene (00:02 ):
Hey everybody. This is Gene Marks. And welcome to this week's episode of The Hartford Small Biz Ahead. Today I wanna talk about cash, just for a few minutes. The question I want to answer is a question that I get from a lot of my clients. A lot of my readers, a lot of people in the small business community is exactly "how much cash should you actually have in the bank?" How much cash do you have available? Like what, what's the right number?" I mean, if you ask any small business owner, we'll tell you that having plenty of cash in the bank is probably the most important indicator of our financial health, but unfortunately managing cash flow, that continues to be one of the biggest issues we face. Almost two thirds of small business owners are regularly stressed or have anxiety to cash flow concerns.
Gene (00:46 ):
According to a recent survey that was done of more than 500 entrepreneurs from the Small Business Lender Kabbage. More than a quarter of them said they have gone as much as six months without receiving a paycheck. I mean, obviously cash is a big headache for us and it's a big stress to us. Six months, of course, without a paycheck seems pretty bad to me. And the question is, "does it really have to be that way?" The answer is, "of course not." Now most businesses today, we are benefiting from a recovering economy, which is good news, small business sentiments. According to the National Federation of Independent Business' is still at a pretty strong level. But we all know as we learn from COVID, that things can turn south pretty quickly.
Gene (01:28 ):
And we are dealing with things like high prices and labor shortages as well. I mean, even the most profitable business can still be short of cash. If you and as an owner are not paying attention, which is why it's important for you as a small owner to target a minimum cash reserve to keep on hand and manage your expenditures around running your business. I mean doing so would go a long way towards helping both you and me decide whether or not we're able to afford that next employee or make that capital investment or commit to a large inventory purchase. So the question is like "what's the magic number," "What is that cash that we should have available?" "What is the amount that we should have in reserve?" Well, I've spoken to lots of different experts about this, and of course, in my own humble way, I've got a lot of experience with this.