We’ve all heard the story about the squirrel who works hard in the sweltering heat all summer long, building a nest and gathering nuts to store for the winter. When the winter weather arrives, the squirrel is warm and well fed. The squirrel was smart and prepared. Do you have a Squirrel Fund? Are you prepared for lean times?
At bookskeep, we know that e-commerce businesses have ebbs and flows. It’s important to save in prosperous times for your “winter” months. This makes sense, so why is it so hard to do? There is a behavioral reason for this. It’s called Parkinson’s Law, and it is the basis of Profit First. Parkinson’s Law states, “work expands to fill the time available for its completion.”
How to Build Up Your Savings
- When you receive your Amazon payout, try to pay for inventory you just sold. If you owe creditors for your inventory, set funds aside to take care of paying for these expenses first.
- Next, calculate your average monthly operating expenses for the year. Let’s say that you have average operating expenses of $3500 each month. Ensure that you have that amount in your account to cover your operating expenses until the next payout.
- Pay yourself and set aside taxes using the Profit First method—take care of you and your obligations.
- Save! Move the remaining funds to a separate savings account. Do not leave it in your operating account. Out of sight, out of mind! As this account builds, you can develop a strategic approach to how you want to use those funds.
Create a Strategic Plan for These Funds
You’ll be surprised how quickly your savings account accumulates. Depending on your business needs and strategic plan, you can use these funds in a variety of ways!
- Taxes—We all dread tax season, but if you have been planning and saving, it makes tax time less stressful.
- Cushion—If you have savings, you can use these dollars to supplement your paycheck or operating expenses during your business off-season or when times are slow.
- Grow Your Business—Perhaps you’re considering changing your business model. You can use your savings to switch from retail arbitrage to wholesale, or launch a new Private Label product. Maybe you consistently run out of inventory; these funds could allow you to build your inventory stock.
Whatever you decide to spend your savings on, you will sleep better knowing that you have some nuts saved up in the nest for winter.