Rules of thumb for cash reserve????

Discussion in 'Starting a Lawn Care Business' started by GrayM, Dec 8, 2010.

  1. GrayM

    GrayM LawnSite Member
    Posts: 84

    There's plenty out there for personal use, but what about for businesses? Are there any guidelines for how much cash you should have available in case of equipment failure, some other kind of emergency, or just in case you run across a good deal on a piece of equipment and need to act on it quickly?
     
  2. Stillwater

    Stillwater LawnSite Platinum Member
    Posts: 4,808

    accountants recommend cash reserves 3 to 6 months I recommend much longer if possible. Start a equipment fund separate from the reserve for those deals that pop up.
     
  3. GrayM

    GrayM LawnSite Member
    Posts: 84

    Thanks for the response! Is that 3-6 months of fixed expenses (phone, rent, insurance, etc), fixed + variable (gas, payroll), or cash flow? How much should you have set aside in the equipment fund?

    I guess a lot will probably say the more the better, but at some point having too much cash lying around is a bad thing (I'm not at that point).

    I had to pass up a 12' PJ dump trailer for $2000 this week. That kinda hurt.
     
  4. lawnkingforever

    lawnkingforever LawnSite Bronze Member
    Posts: 1,280

    You can never have too much cash lying around.
     
  5. GrayM

    GrayM LawnSite Member
    Posts: 84

    I disagree. If you've got too much cash, you should actively be looking for ways to invest it to make your business grow. Some is good/necessary as insurance, and to insure you're capable of acting on any good deals if they come along. But to much is a waste of resources.
     
  6. lawnkingforever

    lawnkingforever LawnSite Bronze Member
    Posts: 1,280

    We have to agree to disagree on this one. I have never heard of having too much cash as a wasted resource. There is nothing wrong with either philosophy. Some guys want to keep growing and reinvesting there money back into their business. While other guys have built profitable routes over the years and are happy with that. If I wanted 100's of accounts and employees, I could pull the trigger anytime I wanted and make the right moves to do that, I simply do not want to at this point. Good luck.
     
  7. STL Cuts

    STL Cuts LawnSite Senior Member
    Posts: 493

    I don't think you get what he is saying. I think he means that if you have a ton of cash sitting around idling (sitting in a checking/savings account making less than 1%, etc.) you are not using it as efficiently as you can. You should keep a sufficient amount of cash tucked away to cover your budget, but anything above that you should have invested. Obviously, don't put everything away, but extra cash should be invested in something (even short term liquid investment will yield better returns than having it sit in accounts that don't yield any returns).
     
  8. Stillwater

    Stillwater LawnSite Platinum Member
    Posts: 4,808

    yes all operating expenses, what you would set aside for a equipment fund would be your own personal business decision. What people mean by to much cash lying around is a bad thing (it's not) But think as funds grow their is just "better places" to have it lying around like high yield accounts or cd's or other longer term investments. This becomes your business foundation.
     
  9. lawnkingforever

    lawnkingforever LawnSite Bronze Member
    Posts: 1,280

    Thanks for clarifying Stillwater and STL Cuts. I thought he meant to reinvest most of your money back into your business. With the uncertainty of the real estate and stock markets, along with rates on CD and annuities at all time lows, alot of people have their money on the sidelines right now. I do think keeping everything in a lowbearing interest account is a little conservative though. There are many bright spots out there, you have to find them.
     
  10. KS_Grasscutter

    KS_Grasscutter LawnSite Gold Member
    Posts: 3,331

    I know I would sleep a lot better at night if I had 6 months of total business and personal expenses in a savings account somewhere. Plus starting next year I would like to put 4k a year into an IRA, and also invest as much as possible in a mutual fund. I don't really want to have to mow forever lol.
     

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