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Both should be pricing in the risk. If I buy a house as an individual I'm taking some of the risk, but so is the bank that lends me money. We each have differe

Both should be pricing in the risk. If I buy a house as an individual I'm taking some of the risk, but so is the bank that lends me money. We each have different risks (I can lose the house, the bank can lose the money if they can't make it back by selling it), which is fine.

kfrzcode 7y ago
Honest question, how does one factor in risk for a catastrophic decline in cash flow? I'd suggest having a war chest which could cover six months expenses. I'm not a business owner though... I imagine it's probably harder to do than it is for an individual.
- toomuchtodo 7y ago
  6-12 months of cash reserves, whether you’re an individual or business. The yield drag is offset by avoiding insolvency.
  - papeda 7y ago
    Is this reasonable to expect from a business where 6 months of cash reserves are not legally required? Can't the restaurant that saves 1 month of reserves instead of 6 months charge lower prices and still turn a profit, thus outcompeting the prudent save-for-6-months restaurant?
    - Eldt 7y ago
      Yeah, and then they get ruined by a pandemic or an assortment of other situations...
      - londons_explore 7y ago
        But 'ruin' simply involves claiming bankruptcy, then selling assets to someone else who will continue operations with 1 month reserves. Overall, cost of business is lower.
      - rebuilder 7y ago
        They do. And? Most businesses do not plan for this kind of disaster. Once in a blue moon, the ones that do are better off for it, but they have to survive decades of poor competitiveness to see that benefit.
- maccard 7y ago
  if your war chest covers 6 months, then at what point do you start chasing the income? do you wait until 6 months are up, or do you begin the process 2-3 months in, in the hope of resolving the situation before you run out of cash?
- Zenst 7y ago
  Business interruption insurance is one way, though as with all insurance, the wording is very important to make sure it covers your needs.

kfrzcode 7y ago

Honest question, how does one factor in risk for a catastrophic decline in cash flow? I'd suggest having a war chest which could cover six months expenses. I'm not a business owner though... I imagine it's probably harder to do than it is for an individual.

toomuchtodo 7y ago
6-12 months of cash reserves, whether you’re an individual or business. The yield drag is offset by avoiding insolvency.
- papeda 7y ago
  Is this reasonable to expect from a business where 6 months of cash reserves are not legally required? Can't the restaurant that saves 1 month of reserves instead of 6 months charge lower prices and still turn a profit, thus outcompeting the prudent save-for-6-months restaurant?
  - Eldt 7y ago
    Yeah, and then they get ruined by a pandemic or an assortment of other situations...
    - londons_explore 7y ago
      But 'ruin' simply involves claiming bankruptcy, then selling assets to someone else who will continue operations with 1 month reserves. Overall, cost of business is lower.
    - rebuilder 7y ago
      They do. And? Most businesses do not plan for this kind of disaster. Once in a blue moon, the ones that do are better off for it, but they have to survive decades of poor competitiveness to see that benefit.
maccard 7y ago
if your war chest covers 6 months, then at what point do you start chasing the income? do you wait until 6 months are up, or do you begin the process 2-3 months in, in the hope of resolving the situation before you run out of cash?
Zenst 7y ago
Business interruption insurance is one way, though as with all insurance, the wording is very important to make sure it covers your needs.