A La Carte NACE Blog
Fresh ideas and inspiration for your events.

3 Things to Do When Your Business is Flush with Cash

The event business has its ups and down. Where finances are concerned, it’s not unusual that we deal with cycles of feast versus famine. Wouldn’t it be nice to be living in the FEAST MODE permanently?

Here are three things you should do when you’re flush with cash.

Save for your slow season.

When setting a goal for saving money, I like to look at slow business cycles. For example, in Chicago, catering and event businesses tend to have cash slowness from January through March. That’s no surprise. Everything slows down during polar vortex season.

In this example, the Chicago business with a monthly expense budget of $10k, would want to save $30k to cover that worst-case-scenario slow window of time.

And, depending on the business’s level of comfort, they may want to tack on more for economic implosion, alien invasion, big and small emergencies, or maybe a 6-month sabbatical.

Question: What is the dollar value that would make you feel comfortable and secure in your business?

Saving that dollar amount won’t happen overnight. In fact, it may take months (or even a few years) to get there. But, you’ll have greater security and flexibility in your business’s financial decisions when you reach that savings goal.

Look at your vendor payment obligations or estimates.

If you have product or material as part of your business, you’ll also have vendor payments. For every event you sell a client, you’ll have a vendor obligation attached to it. This is different from overhead expenses, which have a different impact on your cash flow. This is your cost to produce the event (cost of goods sold).

Often, an event business receives deposits in advance, long before the need to pay food suppliers, floral vendors, contractors, and so on. This is where one can get into a pickle.

Let’s say you receive $7500 from a client before the event. $2500 is due at the event date for $10,000 total contracted with the client. And, let’s say you spend that $7500 when you receive it. (Mama needs a brand-new purse!)

Before the event, a floral order is placed at a cost of $4000. You have $2500 coming in from the client as a final payment. But, that’s not enough to cover the entire $4000 invoice. YIKES!

This introduces a challenge of timing client deposits with vendor payments.

When you’re flush with cash from deposits, determine how much to save for that vendor payment. In the above example, you’d want to have $4000 squirreled away.

Track this with a fancy spreadsheet. OR – keep it simple. Do a periodic overview of your upcoming events. Save the equivalent of your cost margin for all upcoming events. For example, for events totaling $300k for the upcoming 12 months, with a floral margin of 40%, you’d want to have $120k saved for those payments.

Take an equity draw. You’ve earned it!

Every business owner has a different level of comfort for their ideal savings goal. For some people that magic value is 1-month worth of expenses. For some, it’s 12-months. You do you.

But, at a certain point, after they reach that goal, any excess cash is likely NOT serving the owner. They’re not benefitting from the potential of that cash if it’s just sitting in a business checking account not accruing any interest.

If you find yourself in this very flush situation, and you don’t need to make any more investments into your business, you’re likely going to benefit more from taking an equity draw on that cash and putting it to good use outside of your business. (Disclaimer: you’ll want to talk with a financial advisor who can guide you on what investment is best for you. And, to ensure you’ve got your taxes squared away.)

Here are some general ideas for you:

  • Invest it in a retirement fund. (Or make additional contributions to retirement.)
  • Invest it in a CD, money market account, real estate, or the stock market (with the help of your financial advisor guiding you on what’s best.) This is where your money begins to earn money on its own.
  • Make a payment towards this or next year’s taxes. (This is definitely the least fun of these options. But – hey – you can get ahead of it.)
  • Make a bigger payment on your mortgage (or pay off some personal debts).
  • Donate to your favorite charity
  • Or – gosh… take a nice vacation!

The point is: this excess cash may have more value elsewhere.

Feeling flush?

When you’re feeling like a king or queen, rolling in all that dough, don’t get too cocky and confident. You’ll want to save for a rainy day or look at your upcoming vendor payments and make sure everyone will be covered. If you’re feeling good with all of your business obligations, go ahead and treat yo’ self with an equity draw!

 

Michelle Loretta is a business consultant and financial strategist for wedding and event professionals. As the founder of Sage Wedding Pros she blends her past as an accountant for Deloitte, a sales and marketing manager for DDLA, a merchandiser for Coach, and a stationery entrepreneur to strengthen wedding businesses worldwide. Michelle wakes up each day excited to create Financial Strategies for Wedding and Event Businesses. She has been asked to speak at a number of industry conferences, including NACE Experience, Biz Bash Live, and The Special Event.

 

The following two tabs change content below.

Michelle Loretta

Post Comment

*

Social Media Auto Publish Powered By : XYZScripts.com