Do you have a “stash the cash” plan? If you don’t, it’s high time to start one! In this article, we will delve into the importance of having a financial strategy for your business, using the metaphor of a “golden goose” and its “golden eggs” to illustrate the concept. We’ll explore why it’s essential to keep the golden goose and your business healthy and how stashing the cash can be the key to long-term financial success.
The Golden Goose and Its Golden Eggs
Imagine your business as a golden goose, and the cash it generates as the golden eggs. Nurturing the golden goose is crucial to maintaining a thriving business. After all, your business isn’t just a source of income for you but also for your employees and their families. Taking care of the golden goose is paramount.
Business owners often keep the cash within the business as a safety net, and this cash serves multiple purposes, from covering day-to-day expenses to investment opportunities. However, when the business is flourishing, and the cash position is robust, it’s time to consider “stash the cash” strategies. This can involve taking dividends, contributing to a holding company, funding a retirement account, receiving a bonus, or issuing dividends.
The Impact of Stashing the Cash
What happens to your business when you stash the cash outside of it? Surprisingly, it doesn’t suffer. In fact, it can even thrive. While it might seem counterintuitive, your personal estate value grows each time you move some of the cash outside of the business. It’s like creating an additional golden egg outside of the business.
Many businesses continue to thrive even when a portion of the cash is stored elsewhere. The practical experience often defies theoretical expectations. Successful “stash the cash” programs have enabled business owners to retire comfortably, thanks to these well-executed strategies.
Contrast this with a scenario where all the cash remains within the business as a safety net. As you approach retirement, the concentration of value becomes increasingly lopsided. All your golden eggs remain in the business basket. If the business’s performance falters, your additional eggs are at risk. This is what financial experts call “concentration risk.”
There are numerous potential challenges associated with having all your value tied up in your business. For instance, if you plan to pass ownership to the next generation, having all your value within the business can make your retirement dependent on your children’s ability to run the business successfully.
On the other hand, having a decent pile of golden eggs stashed away over the years provides you with less stressful and more flexible retirement options. It gives you the freedom to structure a succession plan that suits your needs and ensures your financial security.
The Time to Act
Starting a “stash the cash” plan is akin to planting a tree. There are only two good times to do it – today and 25 years ago. The earlier you start, the more significant the benefits you’ll reap. When invested wisely outside of the business, your golden eggs can grow into a substantial financial safety net for your future.
In conclusion, taking care of your business’s financial health is not just about safeguarding your present but also securing your future. By “stashing the cash” when your business is flourishing, you can ensure that your golden goose keeps laying golden eggs for years to come. Don’t let the concentration risk loom over your retirement plans. Start planning for your financial future today.