GROW LIKE CRAZY: How to turn around every challenge into an opportunity and grow your business like crazy by Jain Deepak

Author:Jain, Deepak [Jain, Deepak]
Language: eng
Format: epub
Published: 2020-10-01T00:00:00+00:00

#5: Retained Earnings

Not Having an Emergency Fund or Adequate Cash Reserves

N ot developing cash reserves, aka an Emergency Fund, is another common mistake and challenge I’ve seen among entrepreneurs and small business owners.

Called “retained earnings” in the cooperate sector, “cash reserves” are the amounts of money your business has left after paying expenses and dividends to shareholders.

As mentioned in the chapter on cash flow, as a business owner or entrepreneur, you want to get to a position where at the end of each financial period, you have retained earnings.

When you have retained earnings, you can have the liberty of reinvesting the funds into your business to generate revenue.

The terms “retained earnings” and “cash flow” often induce anxiety and fear in the hearts of many entrepreneurs and small business owners.

To make things less anxiety-inducing, think of retained earnings as an emergency fund, money that you can use to fund an X business activity should the need to do so arise.

As you know, every person who wants to achieve financial stability and freedom must first create an emergency fund.

Likewise, and I can’t emphasize this enough, every business needs to create an emergency fund drawn from retained earnings.

To illustrate the importance of having an emergency fund, think about the current economic situation caused by the COVID-19.

When the pandemic broke out, many businesses had to shut operations for a specific amount of time; to date, some industries are yet to recover from the effect of the coronavirus.

The businesses that have been able to remain operationally profitable throughout the pandemic are those whose owners had the foresight to direct retained earnings into an emergency fund.

To make things as clear as possible for you, remember this:

Every business needs an emergency fund. Most of the business enterprises that fail do so because of failing to prepare for any eventualities.

Let’s discuss the primary importance of directing some of your retained earnings into creating an emergency fund for your business:

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