“My dad used to run his own business. He was only high school educated. Every time I tried to complicate things when I was in college and I’d talk to him about his business, he would be like, ‘It’s three shoe boxes, Nick.
It’s the money in, the money out, and then the third box is what paid for your college.’ That’s the money that’s left over.’
If you worked with me you would hear me say that a lot. I will get some very complicated models sometimes and if there isn’t a three shoe box tab on that spreadsheet – money in, money out, money left over – I don’t even want to look at it.
It’s not that hard. If that third shoe box is not going to have anything in it, you need to reassess what you’re doing.”
— Nick Kokonas
That quote is from a podcast Tim Ferris did with Nick Kokonas in April 2020.
Nick Kokonas is the co-owner and co-founder of The Alinea Group of restaurants, which includes Alinea, Next, The Aviary, Roister, St. Clair Supper Club, and The Aviary NYC. He is also the founder and CEO of Tock, Inc., a reservations and CRM system for restaurants.
The podcast was very interesting. They discussed a range of topics, including how Nick’s companies have responded to being partially shut down during the pandemic.
I Love It
I love the three shoe box example that Nick shared. It is a very effective way to communicate what it means to “have money” in your business.
It is one thing in business to have “cash flow”. It is one thing in business to be “profitable”.
But it is another thing all together to have “money left over” that you retain in the business. Especially when the unexpected happens.
How Much Cash Should You Keep in the Business?
I generally set one month of operating expenses as the absolute minimum cash balance to keep in the business.
I set about 3x that amount as a healthy cash balance that generally stays in the business.
A cash balance over that is what I would consider “excess cash” that can be safely distributed to the owners.
This 3-Part Plan will walk you through my approach to creating financial health in business (and defining how much cash to retain in your business.)
How much cash do you keep in your business?
NOTE: You can grab a copy of my newest book at Amazon.
A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.
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