Tips over tea: The 10% rule

It was a nice afternoon tea with my better half, last Saturday. She can only be called my better half, as she always surpasses me with her insights, and shows me the ‘mirror’ gently. While talking, she said ‘how has been your own business doing?’. She knows that I always chase gold mines, and sometimes succeed and sometimes fail.

Save 10% of your revenues, no matter what.

My answer to that question was a questioning look. She said ‘ how are you doing on cash balance?’. She said, ‘ Well, you know, it is rotating cash.’ and hence sometimes, when the expense spikes, you know, it is all a zero sum game,’ – I said sheepishly.

I then remembered my customers, the more well do ones. I chase them for payment, and they give a similar answer – ‘you know, our customers have not paid us, so can you wait for some more time?’. Now, it seems that the chain goes on. Somebody has to pay somebody, and who in turn has to pay somebody, and so on.

As my memory crashed back to my conversation and tea, she was waiting for me to respond. I said -‘I dont have more money than I used to have. That too even if my company makes more revenues’. She looked at me as if I am a back bencher in fiscal management class.

‘Look at the 10% rule’ she said. ‘Whatever your revenues, ruthlessly clamp 10% of savings as your expense. This is more than paying your bills. Knowing that is too difficult sometimes, but this is the first rule of business to attain profitability. ‘ As I thought through this ‘pearl of wisdom’, I nodded my head to her words, without saying anything, as the cup of tea got over.

I realized that I could have been better, had I been a little more tighter on cash, atleast that 10%. Not sure how the wiser businessmen think of this, but I plan to indeed try out in my smaller businesses first.

-Ashok Subramanian

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