by Bill Kinnard
Business can be hard enough on a day-to-day basis without wondering how you’re going to cover the bills, the next payroll, monthly withholding payments and every other person, vendor or team member who wants to take every nickel out of your bank account. A Hill & Valley account can make your life a lot easier during those slower times of year. Here’s how it works. Part of the monthly budget – yes you need a monthly budget – should be a payment into the Hill & Valley account. Treat this payment with the same urgency as the rent, your utility bill, or a payment to your suppliers. Some call this a rainy day fund. Dave Ramsey says his grandmother used to tell him he needed a rainy day fund. When he replied “well that’s not a very positive attitude”, his grandmother told him “I’m positive, it will rain some day!”
The H&V account should be in a separate account. Don’t let the money sit in your checking account. The law of money says that every significant budget can and will absorb every dollar that you make available to it. YOU HAVE A SIGNIFICANT SIZED BUDGET! If you leave the money in your checking account, it will disappear. There is always just one more tool that would make your job easier. Keep your eye on the ball. Don’t get distracted. This is a cash flow budget item. Transfer the dollars to a different account. There is not profit at the end of the month until after this payment has been made. On months where you are slow and there is no cash coming in, you can pull the money out of the H&V account to maintain your cash flow and stay current. When the profit returns, do everything you can to replenish your H&V account.
Here are five benefits to establishing the H&V account.
- There Will Be Slow Months – Just as Dave Ramsey’s grandmother said “I’m positive, it will rain some day!”, I am just as positive you will have slow months. You have those times of year when the cash in just doesn’t equal the cash out. During these months you can draw funds out of your H&V account to make up the difference. Again, be diligent about replenishing the H&V account on your first profitable month.
- Evens Out Cash Flow – if you have funds available to make up the shortfall on negative cash flow months, you even out your cash flow. You know how frustrating it is when you get behind one month and then spend the next three months digging out of the hole. It’s a different mindset repaying yourself then owing your suppliers or vendors and dealing with past due calls from them.
- Puts Your Team At Ease – whether you realize it or not, your demeanor changes when you are under the stress of dealing with the day-to-day cash flow struggles. Your team sees this and their performance changes along with your change in demeanor. When you’re tense, they walk around on egg shells. They will be tentative about taking ownership of their role for fear of having to deal with the ramifications of a wrong decision on their part. As a result, productivity suffers.
- Gives You More Confidence In Running Your Business – Life changes when you are not worrying about every penny and where it is coming from and where it needs to go once it gets here. You will make wiser decisions when it comes to moving your company forward along its path of growth and increased productivity. When you are stressed by cash flow struggles, you tend to have to micromanage every aspect of the day-to-day business. When you micromanage, you become the lid – the limiting factory of your company. It cannot grow beyond you. You have to be comfortable with the leaders you have trained and let them run.
- Lets You Sleep At Night – you have enough to deal with in running your business. When the day is over you need to go home and enjoy your family. You can’t live to work but instead, you need to work to live. There are far more important things in your life than working. I don’t know of anyone who was on their deathbed and said “I wish I had spent more time at the office.” Life is short. Being able to go home at the end of the day and enjoy your family, getting a great night of sleep so you can function at a high level has tremendous benefits. Be intentional about getting to this point.
At the end of the day, monies that you deposit into your Hill & Valley account will be allocated as profit when it comes to your profit and loss and you will pay taxes on those profit dollars but this is not about accounting. This is about being able to run your business on a day-to-day, month-to month basis. You will have those slow cash flow months. Plan ahead to be able to walk through them with ease.