"A penny saved is a penny earned." Ben Franklin Sometimes the most effective way to prosper is as old fashioned as Ben Franklin’s adage, “A penny saved is a penny earned.” It was true in colonial American and it is true today. How so? Let me tell you the story of Ruth and Colin who own a small personal care salon in Florida. For the first five years of their business, they lived the “deposit to deposit” existence common to so many small business owners. That is- never enough money and always too many bills. Their cash flowed in and flowed out. It did not hang around until they followed my “Ben Franklin” advice. As you might expect, the lack of a cash reserve left them fearful of the future and in a perpetual state of worry. Any slow day felt like a depression. Ruth and Colin, as much as they wanted to be their own bosses- did not enjoy the pride of entrepreneurship. Money worries stole their pleasures. I met the couple through a friend who suggested they ask for my help. They did, and I suggested a simple old-fashioned remedy that has helped many businesses over the years to grow and take advantage of unforeseen opportunities. These businesses after a short while, had cash in the bank. They accumulated dollars to take advantage of buying opportunities, dollars to expand, and dollars for peace of mind. What is this magic success formula? I suggested to Ruth and Colin they open a business savings account. And of course, they were less than enthused and told me so. They explained they used all of the cash flow to pay bills and cover living expense. There was no money for savings. Expecting some esoteric, “known only to the wealthy” secret, their facial expressions said: "Some help you are!" Today in less than a year, they have a savings account with a balance equal to half a month’s average sales. In ten months, they stand a little more erect, they don’t fret over a slow week, and they are enjoying their business with a sense of purpose. Saving the bucks is no miracle, but seeing a change in there outlook and attitude is. Here is the plan I suggested they follow. With every bank deposit, “skim off” 5 percent and deposit that amount in your new business savings account. The secret is making no exceptions- regardless of your cash flow or bills. Remember bills you will always have, expenses you will always have-and here is a fact of life- there will be no miracle loaves of manna from heaven to bestow prosperity on you. If your daily deposit is, a hundred bucks put five in the savings account- if the deposit is $10,000 put $500 in savings. And in twenty months you will have savings equal to an average month’s sales. Not bad, few businesses can brag about such cash balances. Now before you jump on my case, and tell me about your bills and the pressure you are under. Let me ask you- will a nickel on a dollar make that much difference with your creditors? Will a nickel on a dollar affect your life style that much? I doubt it, but will a nickel of a dollar give you peace of mine? Absolutely. Yes, at the end of twenty months, your bills will be as high or even a little higher, but your cash balances will be dramatically improved. Here is a surprising note, if you have bills and no cash, your bank and vendors get nervous, if you have cash and bills, they are happy. You can have a lousy current ratio but if you have a large savings account, you are considered a safe bet. And if you tell me the bills make you nervous because you are stashing the five percent- you still have the money! And how do you handle a cash emergency-your savings account allows for a painless solution? Assume you have stashed twenty grand over the past year and you need five to repair a piece of capital equipment. Do you take it out of the bank? No! Take a passbook loan- at a riduclous low interest rate- and pay off the “loan to yourself” using your nickel on a dollar formula- in a short time the pass book loan will be paid off- you have solved your emergency and your stash is still growing- could it be any better? If your financial pressures are less severe, try for 10 percent, think of it in less than a year, a month’s sales in cash! Or if 5 percent scares you- at least try 3 percent-And if you can’t do that, ask yourself will you ever have any cash in the bank? I doubt it! Copyright 2003 Paul E. Adams Dr Paul E Adams, Professor Emeritus Business, Ramapo College of New Jersey & Retired Entrepreneur, Syndicated Columnist, Host of the access cable TV program "Tri -State Movers and Shakers," and Author of “Fail-Proof Your Business,” Available @ Amazon.com. Comments, questions, or suggestions to: xpaul@pikeonline.net