How to Set Up a Cash Reserve for Your Business Startup

SCORE has a new list of tips for creating a cash reserve for startup. Why do you need a cash reserve? Well, for one thing, you need money to live on while you're starting. It is a rare business startup that creates enough positive cash flow to pay the bills of the business, let alone your personal bills. So how do you create a cash reserve?

• First, figure out how much you need to live on. Be frugal; this is not the time for that Lexus. And you won't be able to save for the future, except for a very minimal amount. You probably should hold off on putting money into savings for a while. You'll need every penny to keep both your home and the business running.
  
• If you are still working, start putting money aside before you quit. As SCORE says, take 5% of your salary and put it away. Or take that last raise or promotion and pretend you didn't get it. I know, it's easier said than done, but you'll be glad you have it later.
  
• Don't take on any new expenses or commitments right now. See if you can keep your car going a little while longer, and don't make any sudden moves - like a new house or an addition.
  
• If you can pay down credit cards or high interest loans, do that too. Anything you can do to increase your credit rating and decrease the amount you must take from the business will be helpful. By the way, hold on to that credit card; you may need it during startup.

By now, you're getting the idea: Saving as much as possible to prepare for your startup, and keeping your personal expenses low during that startup period will give you a huge advantage when you begin your business.