Peace of Mind: Building Your Cash Cushion (and Why It Changes Everything)

In a world (cue the dramatic music) where your business finances once felt like a black box no one could decipher, a hero emerged. The hero your business deserved: you. You fought back the fog, built transparency, learned to forecast with confidence, and started paying yourself like the professional you are.

Now, with clarity and stability in place, there’s just one piece left: Peace of Mind.

Peace of Mind

In the real, unvarnished world we live in, every hiccup and misstep brings consequences. A big account leaves your firm, rent goes up unexpectedly, or the government is run by especially inept individuals … and your business is brought to its knees. None of it is within your control, and none of it would be captured by your forecasting.

The unforeseen occurs and you’re left scrambling. Your decisions are rushed. You’re only as good as your ability to react quickly and decisively. But what if there was a better way?

What if you could be strategic instead of reactionary?

In situations like these, the only way to remain calm, confident, and have breathing room is to have a robust cash cushion or emergency fund. This simple act gives us the ability to pause in the face of adversity and make the best, strategic choice possible.

It buys you time to think.

Small problems remain small, and large problems aren’t the crippling crises they used to be.

No matter what happens, you’ve got plenty of runway to figure it out.

Lately, I’ve been deep in personal-finance conversations. I won’t bore you with the full obsession, but I want to give you a glimpse at a mindset shift that was particularly impactful for me.

We saved our money, invested diligently, we’re fine. But things come up like cracked walls, or dying hot-water heaters … and suddenly we’re liquidating some of those investments to cover extraneous unforeseen expenses.

If the market’s up, great! If the market’s down … less great. The market doesn’t care about when your need arises. But if I had 12-18 months worth of our personal expenses in cash, everything changes. Now, when the market dips, I don’t have to sell. I can wait, or even buy.

If we do this, we go from reacting … to strategic choice.

The same logic applies to your business. Build that cushion, and you shift from surviving to steering.

All you’re doing is setting aside enough money to cover your expenses for a period of time. And while that might feel impossible right now, it’s important to remember that it’s not something you do overnight. As with any large undertaking, like retirement savings, it is the result of gradual and disciplined action.

Start with one month of core expenses. If that feels out of reach, begin with 1% of every deposit. You won’t even feel it but you’ll see it add up. You can likely absorb a 1% reduction in revenue without breaking the bank. If you can’t, this is a great excuse to drive some cost reduction to cover the difference.

Discipline and consistency are the important part here, not perfection. While you’re building toward your target, if you’re forced to draw from this fledgling emergency fund before it’s full … don’t panic. Just continue contributing and keep moving forward.

How Much Do I Save?

Each business is different, and we all have varying tolerance for risk, so there’s no magic number. That said, a good long term goal is somewhere between 3-6 months. The length of your business cycle, your experience in your industry, all of it will inform what the right number is for you.  That might not shield you from a global pandemic, but it’ll give you a ton of breathing room.

The number is less important than the resulting peace of mind. Pick a target that sets you and your business up for success. Save gradually and eventually you’ll get there.

The icing on this delightful cake?

Once your emergency fund is full, every new dollar stays in the business as true profit … ready for strategic reinvestment or well-earned bonuses. THAT’s the power of stage 3.

Imagine how different your business would be if you had full transparency into your business’s finances, you knew and were prepared for what the next 2-3 months held, you were earning a steady income regardless, and you had 6 months of savings to fall back on.

Businesses evolve over time, but stage 3 can be downright transformational.

Take Action

This week, go open another bank account. Your institution should be familiar with you, and the process, by now. Title it Peace of Mind, or No More Panic, or whatever feels clever to you. Every time you deposit revenue, take a palatable amount and siphon it off into your new account.

You’ve built it. The foundation’s solid. The next chapter is strategy, and you’re ready for it.