It is tempting to use available cash in good times to build the business and in challenging ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2017\/10\/MONEY-300x254.jpg\")
times to pay the bills and even to outdo competitors in marketing efforts.\u00a0 Those are both good strategies.\u00a0 But there is a tactic that we need to remember that just might save us someday. \u00a0And it has application to our personal lives as well.<\/p>\n
The rule of cash reserves<\/strong><\/p>\n For our businesses: Once a business has achieved break even and beyond, it should build a cash reserve equal to at least two months\u2019 worth of fixed overhead to protect against unexpected internal or external emergencies, and to allow for your relatively restful slumber at night rather than worry about cash balances. \u00a0\u00a0For our personal lives, the same rule applies, with two months\u2019 reserve should be an absolute minimum.<\/p>\n Protecting our \u201csticky cash\u201d<\/strong><\/p>\n It\u2019s a good practice to keep that reserve, which we\u2019ll call \u201csticky\u201d cash, in a money market account, not because of its earnings potential, which is usually so small as to be inconsequential, but because it is visible and requires effort to invade the balance.<\/p>\n How about seasonal businesses or seasonal work?<\/strong><\/p>\n [Email readers, continue here…]\u00a0<\/em> <\/span>\u00a0Seasonal businesses and seasonal personal work are more challenging, and maintaining \u201csticky cash\u201d is even more important, since it must see you or the enterprise through the low times, long or short. For seasonal sources of income, short term bank loans are an ideal way to augment cash flow and for businesses to finance receivables during high season, always assuming that the loans will be paid off in full – from seasonal receipts.<\/p>\n Matching a loan term against use of funds<\/strong><\/p>\n If borrowing from a line of credit or any of several forms of loans not specifically created Loans for major asset purchases<\/strong><\/p>\n On the other hand, an extended loan for purchase of a building, car or working asset, should have a repayment term that extends into years of interest and principle payments to match the life of the asset or prevent drain of working capital.<\/p>\n So, remember the source of your cash on hand. And remember the need to maintain reserves, and how to protect them by isolating those reserves in a money market account. And maintain those disciplines always to protect ourselves during hard times to survive the downturns that hit most of us at some unpredictable time in our business and personal lives.<\/p>\n","protected":false},"excerpt":{"rendered":" Here comes some advice for all of us to use in business or in our personal lives. \u00a0But to understand it, we need to delve into the short-and long-term sources and uses of cash. Good cash strategies to remember It … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2017\/04\/money1.jpg\")
for long term repayment, never use those borrowed funds to buy assets or pay down long-term debt. \u00a0You will be mixing your short-term asset (cash from the loan) with long term payments. \u00a0Tempting as that is, the practice \u2013 even if used once \u2013 can lead to trouble when it comes to repayment of the loan. \u00a0Always match your borrowing term against your use of funds. \u00a0And a line of credit should always be considered short term.<\/p>\n