Getting Your Business Out of Poverty Requires Doing Something Different

There is a strange chicken-and-the-egg problem when it comes to building cash reserves. When business is slow, there is not enough money to save. When business is good, we finally are able to catch up on everything we have been putting off. Probably even pay ourselves for all the checks we had to hold.  

Before we know it, another slow season arrives and the SAVINGS account is still sitting close to zero. We tell ourselves, "See? I can't afford to save."

Then the cycle starts all over again.

There are seasons when business owners personally carry their companies. You put your own money into the business because payroll has to clear, something breaks, sales slow down, or an unexpected expense hits. You tell yourself it is temporary and that when business picks back up, you will reimburse yourself.

There is nothing unreasonable about that. The problem is what happens if paying yourself back empties the business again. You may have solved the personal debt the company owed you, but you have not changed the financial position that caused you to fund the business personally in the first place.

The next slow month arrives, there are no reserves, and suddenly you are reaching into your personal account again. Saving also becomes difficult when you are an entrepreneur because we can find approximately a million ways to spend money in the name of growth.

There is always another opportunity. A new employee could increase capacity. A marketing campaign could bring in more leads. New equipment could make the company more efficient. A conference could create valuable relationships. A new product could open another revenue stream.

Some of those opportunities may be fantastic investments, but an opportunity being good does not automatically mean your business can financially afford it right now.

When every extra dollar gets reinvested into the next opportunity, the company may continue growing while remaining financially fragile. Revenue gets bigger, payroll gets bigger, expenses get bigger, and the amount required to survive a slow season gets bigger right alongside them.

You can build a very successful-looking business that is still one terrible quarter away from running out of cash. This is where the cycle becomes exhausting. And truly, as you know, at some point, you have to decide to break the cycle.

Getting Your Business Out of Poverty Requires Doing Something Different

I think businesses can operate in their own version of poverty. Every dollar is already spoken for before it arrives. A great sales month creates relief instead of wealth. Unexpected expenses require debt. The owner continuously loans money to the company and then pulls it back out when cash improves. There is never enough margin to get far enough ahead that the business can absorb something going wrong.

You cannot revenue your way out of that cycle if every additional dollar immediately gets spent. Breaking the cycle requires accepting that some money needs to stay in the business even when you desperately want to use it somewhere else. That is why I transfer money into my SAVINGS account every two weeks as part of The STOP Method. I do not wait until the end of the month to see whether anything is left because entrepreneurship will always find something to do with leftover money.

The goal is eventually having three to six months of cash reserves, but you do not have to magically fund three months tomorrow. I know it is hard and that money sitting in SAVINGS can feel like money that is doing nothing, but that money is actually buying something incredibly valuable.

It is buying and giving you choices. When a slow season happens, you can transfer money into OPERATIONS instead of immediately reaching for a credit card. When payroll is higher than expected, you have somewhere to turn. When a great opportunity comes along, you can evaluate it based on whether it is actually good for the company instead of desperately hoping it will solve your cash flow problems. When something goes wrong, you have time to make a thoughtful decision instead of being forced into whatever option gets cash into the bank fastest.

Final Thoughts from Your Favorite Accountant

Your action step is to choose a percentage of gross revenue that you can commit to transferring into SAVINGS every two weeks and protect that transfer even when another use for the money feels more exciting or urgent. It can start small (I still do 1% of revenue), because breaking the cycle matters more than building the entire reserve overnight. The only way to stop moving between good months, slow months, personal loans, debt, and starting over is to begin creating a financial foundation that allows some of today's money to protect tomorrow's business.

Your numbers tell a story, let's make it a good one.

Next Steps

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