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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'
by kfrzcode 6y 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 6y ago6-12 months of cash reserves, whether you’re an individual or business. The yield drag is offset by avoiding insolvency.
- papeda 6y agoIs 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 6y agoYeah, and then they get ruined by a pandemic or an assortment of other situations...
- londons_explore 6y agoBut '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 6y agoThey 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 6y agoif 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 6y agoBusiness interruption insurance is one way, though as with all insurance, the wording is very important to make sure it covers your needs.