This is our fifth and final installment for the blog post covering the topic: Cash Flow. Build a cushion of cash that will maintain you in emergencies. Establish a rainy-day fund. So, how much do you need in this kind of fund? Good question.
Many experts say that you need to be able to cover six-months of operating expenses. For some businesses, you may need more. A business that brings in all of its revenue in the winter months, like a ski resort for example, needs at least 12 months in its rainy-day fund. It will need to pay expenses until the next season starts and that is a year away.
The rainy-day fund will need to cover expenses like rent or mortgage payments, utilities, insurance, payroll, and monthly debt payments.
How do you determine how much you will need? Identify the expenses that you have had over the last 12 months. In addition to the expenses already mentioned, look for other expenses that you need to cover. Also, look for hidden expenses like needing to replace a piece of equipment that you expect will wear out in the next 12 months.
All that being said, you may want to get the help of a seasoned professional, like a B2B CFO. A B2B CFO has many years of experience in knowing what to look for and identifying the expenses that you absolutely must cover. From there, you and your B2B CFO can calculate how much you will need in a rainy-day fund.