Why You Need a LINE OF CREDIT Right Now
00:00:00 - Do you have a Line of Credit?
00:00:12 - Using Credit Wisely
00:00:25 - Emergency Fund and Cash Reserves
00:01:39 - Risk Tolerance and Cash Flow Management
00:02:52 - Seizing Opportunities with Backup Funds
00:03:33 - Financial preparedness is about creating flexibility
Do you have a line of credit? I’m here to tell you that as an agency owner you should get one RIGHT NOW.
A line of credit is not merely a financial tool; it’s a safety net designed to get you out of hard situations. The key here is timing: secure your line of credit before you actually need it. Banks are unlikely to approve credit when you're in the midst of a financial emergency.
Think back to the first days of the pandemic. People were not spending and there was so much uncertainty around what was going to happen. Having a line of credit in a moment like that allows you to keep your team and hold strong for a little longer while you wait for things to get better.
However, a line of credit is not a universal solution. For instance, I don’t recommend using it for hiring. If you’re not making enough to hire someone then using the line of credit is just not the best move. It’s designed for emergencies not recurring overhead.
You should also have cash reserves and not reply solely on the line of credit. Focus on building robust cash reserves and using the line of credit as a backup in case you need to invest those cash reserves into the business.
Your cash reserve strategy should align with your risk tolerance. If money stopped coming in tomorrow for any reason, would you feel comfortable having enough for three months? Six months? A year? Personally, I recommend having at least three months worth of cash reserves. At some point having too much money could be a waste, unless you’re putting it into a high interest savings account.
Adding a line of credit to your cash reserves means you have the ability to seize an opportunities for the business. For instance, if you get an opportunity to make an amazing hire that will take your agency to the next level, you can choose to invest in your agency using the cash reserves knowing you have the line of credit as a backup in case of an emergency.
Ultimately, financial preparedness is about creating flexibility. By understanding your risk tolerance, maintaining adequate reserves, and securing a line of credit, you position your agency to thrive even in challenging economic landscapes.
