About the Cash Reserves Calculator
Plainly put, every business should set aside cash reserves to fund growth and for the "Can you sleep at night?" factor. Cash reserves help pay for unexpected costs that occur throughout the year, and they're often kept in your business account.
The standard response many financial experts provide is a dollar amount that covers up to 6 months of expenses. Obviously, every marketing agency is different. The first step is to look at your finances — including fixed expenses, accounts receivable, revenue growth, sales pipeline, client diversification, etc.
The calculator asks for the amount of your fixed business expenses. Then, it will take you through a series of questions that gauge the financial health of your marketing agency, based on a scale from 1 to 5. Once you fill out the form, you will receive an email that will estimate how many months of cash reserves and how much cash reserves you should have. If you have any questions, shoot me an email at [email protected] I'm happy to walk you through it.
If the cash reserve calculator indicates that you don't have enough, the next step is to increase the amount of cash reserves. How?
- The easy way is to increase sales, find new customer and charge higher prices.
- Another method is to examine your profit and loss statement. Find unnecessary expenses. Digital marketing agencies, in particular, typically have multiple software subscriptions that aren't bringing value to the business.
This means you have some money to work with. Now, it's time to do something with your cash.
- Pay yourself.
- Fund growth in the business.
- Take the money out and invest it.
If there's too much cash in the business, it will slow down your growth and it won't benefit you or your agency.
Contact Chris Hervochon , CPA, CVA today!
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