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How have you always thought about your company’s financial strength? As a function of ongoing cash flow? As cash in the bank? As your available line of credit? As your debt to equity ratio? As intimately intertwined with your personal financial health.
Or a combination of the above- which it invariably is.
Whatever your old paradigm, it likely did not impact from a global health pandemic requiring a government ordered shut down of “non-essential” business.
So now that you have a new reality, what best practices should you consider?
1. Always keep a minimum of 90 days of cash headroom in your business . Cash headroom is cash in the bank today, plus receivables you expect to collect in the next 30 days, less payables you expect to pay in the next 30 days, plus your available line of credit.
2. Monitor your cash headroom weekly. Ready to get started? Email me at Mackey@MackeyAdvisors.com for a fill in the blanks template.
3. Build a strong relationship with a local bank and local banker.
4. Secure the maximum line of credit your business can currently qualify for based on your operational results and current debt to equity. This will cost you a few hundred dollars a year and provide immeasurable peace of mind.
5. Maintain a line of credit on your personal residence and keep it unused for emergencies. This too will likely cost you a few hundred dollars a year but could save your home and provide stability in a personal economic crisis.
6. Consider if you are adequately diversified in your assets so that all your personal net worth is not in the business, or real estate related to the business.
7. Develop a personal financial plan that you update at least annually with your spouse. DIY, or find a planner who specialized in working with business owners.
Remember in times of crisis, no one is going to step up and loan you or your business money. Rather, build your own peace of mind by living below your means, building a strong balance sheet both personally and in your business and adequately diversifying your assets.