Suze Orman recommends 8 months worth of your monthly income for a “rainy day” fund in your savings account
What does a dentist keep in his business Checking and/or savings Fund.. For those slow months, accidents or facility issues can spring up on us. 6 months worth of Operating Expenses?
It directly conflicts with take home income in my case and I like keeping the two TOTALLY separate.
I also am the type that’s always on the lookout for a chart purchase, expansion, office acquisition – not so much CE and Equipment. And if I do purchase something of value and considerable money, should I buy cash or take a loan for the other 80 and stay liquid.
Any suggestions would be great.
In my opinion you want to keep your business account as low as possible. I generally suggest 1/2 months to one month’s expenses. 1/2 should suffice as a/r should cover the other half if something happens where you need to cover a full month. If you want to have a “business” fund, we suggest you strip it out of the practice, either as wages or S-Corp divs and set it aside personally and when the time comes for a large need you simply lend it to your practice and pay yourself interest.
Every business (practice) should also have a LOC available as well, maybe as much as 10% of gross available to borrow
We believe business accounts are more susceptible to fraud and theft. Staff can see how much is there when mail comes in. Depending on how it’s delivered others might have access to it. Offices are more susceptible to outside theft. When cash balances get heavy small discrepancies are less likely to be noticed. If the practice gets sued can the cash accounts be frozen.
If you prefer $100k, why not take out $50k and place it in a personal savings account? You can always give it back quickly through a phone transfer.
We just think you need to be very careful keeping excess cash laying around in business checking accounts.
Tim – Correct me of I’m wrong but the reason I think you’d like to see the Checking account balance so low is so you don’t get double taxes on Biz Income at the end of the year.
No, really has nothing to do with income taxes.
But what if you wanted to keep in 100-300K for a down payment for a piece of property or a office acquisition. At some point your personal income has to take a back seat to save this capital come up right?
Do you think it isn’t worth saving it to that point? – also do you believe in Work Stoppage insurance?
But having that money sitting somewhere usually means you’re going to pay tax on it and if you’re an LLC or s-corp, that money will usually be taxed to you anyway. So why not take it out of the business and set it aside personally for future use. I’m not suggesting you strip the cash out of the business to spend, I’m suggesting that if you want to park a cushion of cash somewhere. I’d prefer a personal account, earmarked for business.
For the record, I like your advice given here….but for arguments sake…Say I wanted to go to Europe for a month.. Do you think that’s enough? FYI I am at 1.2/year MM with about 65% overhead. Seems like the treadmill may need to have a bigger cushion behind it to me.
In my mind that month’s money will dry up too quick
It may not be; however, as you’ve shown, you’re thinking WAY ahead and I’m sure you’ll have contingency plans in place.
This first appeared on Dentaltown.