How much money do you need?

Dan Wyson

In 2007, I learned a valuable lesson from a dear friend who did business successfully. Like most businesses, the growth of his company has always preceded revenue, so it was necessary for my friend to use a loan as a financing mechanism. Credit lines have also helped him smooth out cash flows, as expenses such as wages tend to be predictable, while monthly sales are not. He had little cash on hand, but he planned to handle most of his urgent and cash flow needs on his credit lines. It was not a bad business model. In fact, it is a very common practice.

When the banking crisis hit in 2007, my friend didn’t care because his business was largely intact. However, he soon became dizzy when his banks, which had their own serious problems, cut off his credit lines. It wasn’t his fault. He always paid and could continue to do so, but the banks were in crisis and did not have money to borrow. His business was at stake. He fought but survived, and in the process we both learned a valuable lesson about how much money to keep on hand for unexpected storms.

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