Are you in the reserves? No, I'm not talking about military. I'm talking about Cash Reserves. Do you have any?
Cash reserves are the emergency fund to business. Your photography business should contain cash reserves. I recommend 8 months expenses for the amount in your Cash Reserve, based on a recommendation from Investopedia.
So, what are Cash Reserves? They are low interest accounts that are used for emergency purposes, or int he event cash is required in a quick manner. Cash Reserves are not just for the leaky roof, the failed memory card, broken camera, or broken lens. It can be used for lucrative opportunities.
If someone is selling their photography business and offers you 30 cents on the dollar for the equipment, but only gives you 3 days to make a decision, what will you do? This is where the Cash Reserve comes into play. You can easily determine if it's a good buy for you based upon what you have in your cash reserves.
When these opprotunities come up, don't spend the entire amount of your Cash Reserves. That would be setting yourself up for failure. What would happen if an emergency comes around and you spend all the money?
In order to determine how much of Cash Reserves you can use for lucrative opportunities, let us do a quick calculation. You need $14,000 in your Cash Reserves. You have a profit of $4,000 a month. So, it would take you 3 1/2 months to build your Cash Reserves back up. That means that you can use 4 1/2 months of Cash Reserve, or $7,875, for this opportunity.
The Cash Reserves can also help you get through the slow months. If your business trickles down during winter, use some of your Cash Reserve to make it through. Make sure you replenish it when business picks up, so you that you can use it next year.