Determining Personal Cash Requirements

If you’re considering devoting your full-time efforts toward running your own small business, it’s important to take some time to determine how much money you may need to have on hand in order to meet your personal financial obligations – for a time – in order for your small business to build sufficient cash flow.

To help you in determining what amount of money you will need to hold in reserve, we have created a Personal Monthly Cash Requirements Worksheet. From this, you will be able to create a list of any current annual/monthly bills and payments you have, in order for you to gain an understanding on what amount of cash reserve you will want to have on hand before your business transitions into a full-time endeavor.

Some things to note before creating your own Personal Monthly Cash Requirements Worksheet:
– For bills and payments that may vary month to month, calculate the average amount incurred during the course of a year
– For items that are paid on an annual basis, calculate the monthly amount by dividing the payment amount by the appropriate number of months covered by the payment
– For items in which you have multiple monthly payments (i.e. two car payments, three phone bills, etc.), combine the payments into one total monthly amount

A Personal Monthly Cash Requirements Worksheet example has been provided for you to view, and – from this – you can begin to create your own; this example can be found below.

Personal Monthly Cash Requirements Worksheet
Bill/Payment Name & Monthly Cash Requirements

– Ex. 1: Mortgage / Rent – Amount: $850.00
– Ex. 2: Insurance Premium(s) – Amount: $186.50
– Ex. 3: Car Payment(s) – Amount: $350.00
– Ex. 4: Credit Card Payment(s) – Amount: $654.77
Total Monthly Cash Requirements: Ex. Total: $2,041.27

Now – when creating your own Personal Monthly Cash Requirements Worksheet, feel free to make a simple table on a sheet of paper or insert one into a word document of your own choosing (i.e. Google Docs, Microsoft Word, etc.). Within your table, you will need to have two columns – one to showcase a “Bill/Payment Name” section and another to show a “Monthly Cash Requirements” section. With respect to your table’s rows, feel free to insert as many rows as are needed to document all of your data and information. Once your worksheet table has been completed, add your Monthly Cash Requirements together and multiply that total by six – to get an estimate on how much money you will want in reserve for six months. The formula is as follows:

Monthly Cash Requirements Total x 6 = Personal Cash Needs

Also – if you’d like to calculate your reserve amount for a shorter or a longer amount of time, simply swap the six in the above formula out for whichever number reflects how many months you’d like to calculate your cash reserve.
Calculating your personal cash needs – also known as your cash reserve – is an incredibly important step when taking on a new business endeavor. For this reason, it is highly recommended that, for persons who are planning to start their own business on a part-time basis, a decision to leave their present employment to work in their small business full-time should not be made until the positive cash flow from the business exceeds the monthly personal cash needs total.

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