I’ve had the privilege of working with some of the most innovative, resilient, and passionate small business owners. These entrepreneurs are not just running businesses; they’re making a positive impact in their industries and communities. One common thread among these successful CEos is their understanding of the importance of maintaining a healthy cash flow.
In this post, I’ll share the three essential accounts we advise our clients to have and why we also suggest they secure a line of credit.
1. Operating Account:
This is the primary account where all the business transactions occur. It’s where you receive payments from clients and pay your bills. Keeping a close eye on this account helps you understand your business’s financial health and make informed decisions.
2. Tax Account:
Taxes are a reality of doing business. To avoid scrambling each quarter and during tax season, we advise our clients to set up a separate tax account. A portion of every payment received should be transferred to this account, ensuring you’re always prepared when it’s time to pay your taxes.
3. Reserve Account:
This account is all about celebrating your success and planning for the future. A percentage of every payment received should be transferred to this account. It serves as a rainy-day fund, an investment fund for business growth, and a reward for your hard work.
Now, you might be wondering, “Why do I need a line of credit if I have these accounts?”
A line of credit serves as a safety net. It’s not a sign of poor financial management; instead, it’s a strategic move. Even with positive cash flow, unexpected expenses or opportunities can arise. Having a line of credit gives you the flexibility to handle these situations without disrupting your cash flow or dipping into your reserve account.
Securing a line of credit when your business is doing well is easier and often comes with better terms. It’s about being proactive, not reactive – a characteristic I see in all my successful clients.
Maintaining these three accounts and having an available line of credit is a strategy that can help you manage your cash flow effectively, handle unexpected expenses, and invest in your business’s growth. It’s not just about surviving; it’s about thriving and making your mark as a small business owner.
Here’s to taking your business to new heights!
