For many practice owners, managing cash can feel like a guessing game. Some keep just enough to cover expenses, while others sit on hundreds of thousands “just in case.” But neither extreme is ideal.
The goal is to hold enough to stay stable — without letting excess money sit idle. A good rule of thumb is to keep one to three months of employee salaries in reserve. If your practice is steady year-round, you can operate leaner; if it’s seasonal, keep a bit more. Anything above that amount should be put to work — either reinvested to grow profits or moved to your personal balance sheet to build wealth.
Knowing your target reserve helps you make smarter decisions and reduces stress when business ebbs and flows.
Want to create your own cash strategy? Let’s talk at flveterinaryadvisors.com/contact
Transcript: Let’s talk cash. There’s so many conversations that we have with practice owners, being as a business owner, that money starts accumulating in the business. When you first start off as a business owner, cash might be a little tight, depending on the money that was lent to buy the business, there might be some operational funds. Also at the same time, let’s say you were to start up a business, there’s some operational money to help pay for payroll, rents, just all everyday expenses that need to be covered. And at some point, the goal would be is to shift to where there is no operational money needed because there’s enough cash flow coming into the business. But the big question comes in is, well, how much money would I keep in the business? And we’ve seen major extremes with practices. You’ve got someone who might keep a couple thousand dollars in the business, which maybe some of you kind of like get a little tight and a little tense around that.
And then there’s some people that will have a million dollars sitting in their business account. And it comes to the question here is, well, how much should I be keeping in my business? Oftentimes what happens is that people will start accumulating so much and then they see this opportunity that pops up to where they throw money at something in the business. They withdraw all the cash from their business and then they pay off their mortgage. And then the question that really comes down to it is how is that advancing the mission of the business?
How is that advancing your own personal mission that you’re looking to accomplish? The ultimate goal is to get an a cadence to where if there is money being injected back into the business, it’s not just increasing revenue, but it’s increasing profitability. That’s the money that you actually get to put in your pocket, which then can actually be used to build personal wealth or be put back into the business to create even more profits.
And on the flip side of it, well, as the business is creating profits, well, how are you actively putting money onto your own personal balance sheet? This is a struggle for a lot of people because it’s like, well, I’ve been paying myself a salary, a wage. Maybe if you’re a newer practice, you’ve been paying yourself a wage for a while. Maybe you’re an older practice that where you’ve gotten into, let’s say a little bit more seasoned. You’ve been around for maybe five or 10 years and you’re starting to make some good money.
And there’s differing advice to where it’s like there’s lump sums taken every so often. Maybe you’re not paying yourself a wage. Maybe you should be. You’re taking distributions ad hoc from the business. So what is the number that we should look to keep in the business? If your business is very cyclical, so let’s say you have seasons, well, then you’re probably gonna wanna keep a little extra in there. And a good rule of thumb that we always encourage people to do is at least, keep one to maybe three months of employee salaries on hand. So if you think in a given month, if things aren’t working very well and you’re going negative cash flow, meaning that, everything you’ve collected versus what you’ve had to pay, you actually owe more than what you’ve collected, you can then lean on that cash reserve that’s built into the business. So if you are a person where like your practice is really busy in the summer months, and then in the fall months, it starts declining a bit, this is where it would be very fruitful.
Lines of credits are also very useful in this situation. If your business is pretty steady, consistent, so meaning that your business every month does the same thing, maybe it’s seeing a slight increase every month, you might be able to operate a little bit leaner. This could be anywhere from, let’s say, half of a month’s of employee salaries, upwards to maybe one time’s employee salaries. That way you have enough cash on hand in the business to be able to absorb any shorthand of expenses that you need to pay.
And then if you are one of those people who are actually trying to grow your business and expand even further, we might want to consider keeping some more money in there. And that’s on a case by case basis. And again, the whole idea here is that we want to be able to systematically, anything above that number we establish is either getting reinjected back into the business to build profits, increase more money in the business, or we’re actively taking it and putting it on our own balance sheet. And this can be either done through monthly distributions, quarterly dead cash sweeps. These are things that we help people with all the time.
If you wanna chat further about it, let’s book 15 minutes and we can have a conversation.
This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tom is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors and The Next Step Planning Group are not an affiliate or subsidiary of PAS or Guardian. California Insurance License #0K80141. AR Insurance License #15823672. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals. 7989827.1 Exp 5/27