Preview Mode Links will not work in preview mode

Beginning Balance


Jul 9, 2021

Mark and Jesse expand on Rule Two, or "embracing your true expenses." When Mark onboard a new client, he helps them import six to twelve months of prior expenses into YNAB for analysis. With these numbers, Mark and the client can get an idea of the true expenses of the business, including expenses that occur infrequently, whether it's annual insurance premiums or unexpected costs related to operations. Often during this process the business owner will point out how the expenses during the historical period were a fluke and not representative of a normal operating cycle. But the reality is, unexpected expenses are a normal part of business, and what we perceive as flukes are really just unexpected expenses that we can learn from, and prepare for, in the future.

 

Some entrepreneurs feel that saving up cash today for expenses that will happen in the future hamstrings them by limiting their opportunities for growth or competing with peers in their industry. But as Mark pointed out in the discussions about Rule One, having cash on hand ultimately gives business owners options.

 

If a business owner saves a pile of cash for an expense that never occurs, they can simply decide to reallocate that cash to do other jobs. The reverse scenario is more dire. Not having enough cash to handle an unplanned expense, or an irregular expense that hasn't been saved for, usually involves taking out a loan of some kind to pay for it. That's going backwards!