I’ve noticed a recurring theme over the years, and it’s more common than you would think. It’s helpful to do this one thing, especially as a business owner, and I’ll explain why.
Because it’s simplistic it is often overlooked, but I’ll tell you why it is so important. The one overlooked financial maneuver is to set aside cash. Let me explain.
Better Decision Making
When cash is tight it hurts your decision-making ability and produces a scarcity mentality. There can be small expenses that come about, and cause stress when it normally is not a stressful event. And if a much larger, unusual expense comes about then it causes an even higher amount of stress. Poor decisions are made when you are stressed and financial pressures.
More Options
Cash gives you the ability to take advantage of better options. Options include: buying out a competitor or other business, a down payment on an investment property or large equipment, the ability to be more selective with choosing customers or clients, and more time off from your business.
Ability to Take More Risks
Having cash is a good insulator when making mistakes. If you have extra cash, then you can easily survive a business decision that didn’t turn out so well. You can also take greater risks because you have the cushion in case the risk didn’t turn out the way as planned.
Downside
The largest downside to having a lot of cash is that it gets eaten up by inflation. A few ways around this can be to put the cash in higher yield, risk-free accounts to earn more interest than a non-interesting bearing checking account, and to place no more than half in other very liquid investments. This way, you have the potential to earn interest and/or capital gains without risking all of your cash.
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