How to Financially Prepare For Major Life Events

As a business owner, you know how stressful it is to think about taking time off for maternity leave, buying a house, or maneuvering through a sudden health crisis. But our freedom and flexibility to navigate life events on our own terms are often one of the main reasons we venture into entrepreneurship in the first place. So it goes without saying that we expect our businesses to support us when we need it most. And preparation is key to making that a reality.

We work with our clients to ensure that they’re prepared for both unexpected and expected major life events so that their businesses won’t crumble if they need time away. 

When starting your business, and especially as your business grows, it’s imperative that you think through strategies to ensure that your business does not suffer if you need to step away. Planning ahead of time—before you actually need it—is the only way to ensure these life events don’t catch you by surprise and wipe out your bank accounts. 

Create a new zero for your bank account.

One of the ways that I work with my clients is to ensure they always have enough money in the bank by creating a “new zero.” This new zero is a number that makes your bank account feel “safe” and you work to ensure your account never drops below this number.  My suggestions for this number range from 1-3 months of operating expenses to round figures like $5,000.  It’s truly whatever it takes for you to feel like you have enough wiggle room to pivot if you need without depleting all of your cash reserves.  

Calendar your cash inflows and outflows. 

Once you have a new zero, then you must start managing your cash flow. One way that I implement this with clients is by having a set day to pay all of their contractors, primarily on the first or the 15th of the month.  The same goes for payments received.  For businesses that are unable to transition payments to a single day, we monitor cash very closely by day or week to determine when cash peaks and valleys appear.  Then, we create a plan to mitigate those spikes with cash reserves on hand.

Set up cash reserves to support expenses + your pay.

Cash reserves are your business savings, and each business has its own requirement.  While a solopreneur may only be concerned with covering the basic cost of operations, larger businesses with teams must consider operations, including the costs of their teams’ salaries.  As such, the cash requirement is often greater.  My suggestion here is to not only consider operations, but consider market risk, the risk of losing integral team members, the risk of losing your pay, etc. in order to determine how much you must keep in cash reserves to continue on with your business should a major life event occur. 

As you can see, managing your cash flow is essential to the sustainability of your business. If you haven’t already, I recommend you read my 50-30-20 method to get a better idea of how you can pay yourself more and still save for your business and for taxes.


Need support for your BIG life goals?

Leave a Reply

Your email address will not be published. Required fields are marked *