Preparation For the Unknown

Rodney Koop
Contributing Writer
New Flat Rate

Are you “weathering” the storm or are you highly prepared?

Bottom line, how much money have you socked away for an emergency?

There are many types of emergencies, crisis, events and just plain setbacks in life and business, so how should we prepare for them?

Money is not everything but it sure beats whatever is in second place.  Have you heard that before?

We all know money isn’t everything but here is my quote, “America is a great place to live but it is expensive.” There is no free lunch is there?

So the simple question is, “How much?”  “All I want to know is how much?”

I’m not sure where that quote is from but it’s hard to forget.

You need more than money don’t you?  You need fortitude, character, initiative and much more to survive setbacks but let’s talk about money today.

Let’s say you were a contractor in Houston and your shop and trucks were under water, this is no fantasy for some of you I know.   And nobody knew this was coming so all we can do is dig out and start over.   But those of you who are not under water I am wondering, are you planning to weather the storms when they come or would you rather be highly prepared?

When you see a very wealthy person lose some possessions or maybe their yacht sinks with no one on it.   How bad do you hurt for them? Not at all right…I mean tragedy of any kind is no fun but it’s easier with money and insurance.

I had a boat sink once and State Farm simply wrote a check for the full amount insured (more than the boat was worth by the way) and also for the cost of recovery and lost ancillary items like skis, life jackets, etc.

So my boat sank but when no one is hurt and you are well compensated it lightens the hurt doesn’t it?

Back to you, let’s say you have a 5 person business, an office manager/dispatcher etc. 2 service technicians and 2 equipment installers.  You of course are either a manager/dispatcher or a technician or an equipment installer depending on the day right?

Let’s say one of the following happens:

You are flooded out and lose everything with little or no flood insurance
The economy changes and your work flow stops
Your employees leave and start a competing company
I could go on and on couldn’t I?   Because everybody that works hard to get ahead will suffer setbacks.

So my question for your 5 person shop, “How much?”  How much money and/or insurance would ease the burden until you could get back on your feet?

Payroll $16,000 per month
Overhead (rent, utilities, bank payments, taxes, insurance, and etc.) $25,000 per month

So, breakeven for the month, $41,000. Less if you stop paying everyone.

So how much cash reserve should you have on hand?  By the way, I estimate this 5 person business to be running about $750,000 annually for my example so how about 10% or $75,000?

I am not saying there is a perfect number but would you feel better with $75,000 cash set aside in a special account for such a time as this?

Most 5 person businesses can’t set aside $7,500 so $75,000 would be out of the question. But if the goal is challenging, don’t change the goal change the plan.

So let’s say you have no cash reserve, is there another way? A rich aunt always comes in handy but how about having a heart to heart talk with your insurance provider?  I have one insurance provider that always tries to sell me something every time I see him.  It gets old, until there is an event.  So discuss your “number” with your provider and see what it would take to be prepared financially.

You won’t like the cost but I’ll bet it will be reasonable compared to the actual cash.   By the way, make sure you discuss every possible way you could have a setback and make sure there are no loopholes.

Remember my boat that sank, well I went to my insurance company and got a copy of my policy before I told them what happened.   I wanted to see if there were any loopholes.  I couldn’t tell one way or another from the insurance gobbledygook.   So get an agent you trust and they don’t come easy.  Someone who has been around the block and is experienced.

Now having discussed one possible solution let’s talk cash.   I have a close friend, 2 actually that started setting aside cash the day they started their business.  Both electricians by the way, not that it matters.  Don’t you wish you had done that?  Both never spend the ‘set aside’ money.

One has $75,000 liquid at all times and will never spend it for anything other than dire emergency.  And needing a truck or tool is not even considered.  The other has hundreds of thousands in commercial real estate and residential duplexes that he built over the last 25 years.  And never has less than $20,000 cash in a briefcase close to him at all times.

Now that I think of it I have another friend who once put $1,000,000 (yes one million dollars cash in a briefcase) in case he had to grab it and disappear.  And yes he was also an electrician.  Hmmmm, I think I need to get back into the electrical business.   All three of these men have been in this financial position for as long as I have known them.   The reason, they for some reason decided early on that they were unwilling to be unprepared financially for a crisis.

So how about you?  If you are in business to make a profit and provide for your family and your employees families then where’s the beef?   Is it working for you?  If not then let’s get started right now to prepare by planning.  Also profit is the true test of business success, you are either profitable or something is wrong, if something is wrong, then let’s get it fixed now, before the storm.   Our friends in Houston and surrounding areas are in the midst of crisis, help them anyway you can, if you know someone in crisis send them something, anything that will help a little or a lot.  And then start working on your boat so it floats when the water rises.



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