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A couple of months ago, I read a great article in Forbes Magazine (which I haven’t been able to find online, so I can’t share a link with you). The article was an interview with Jim Collins, best-selling author of “Good to Great.”

Collins said that he learned a great deal from studying Microsoft’s Bill Gates. One of the most important lessons he learned is that it’s important to have “shock absorbers” in your business. “Shock absorber” can be defined as:

1. Resilient bearing which, in a watch, is intended to take up the shocks received by the balance staff and thus protects its delicate pivots from damage.

2. A device or a part that absorbs and cushions the impact of a wheel going over an obstacle, which makes for a smoother ride. No different from a shock absorber used on a car or motorcycle.

The first definition implies a degree of protection, while the second describes a “smoother ride.” In business, the definitions could be interpreted as:

Business Shock Absorber: What protects a business from loss of revenue or from unexpected expenses.

Look over balance sheet of Microsoft. You should be able to quickly spot the shock absorber in their business. To save you the time, I’ll point it out for you - $25 billion in cash. The Fortune Magazine article explains Bill Gates wants to have several years worth of expenses for his business saved in cash. This allows Microsoft to weather almost any negative business threat, including competition, loss of revenue, recession and changes in market demand. More significantly perhaps, the stockpile of cash allows Microsoft to stay focused on its long-term business plan. Without this shock absorber, even large successful companies are likely to defer their long-term business plan to generate short-term revenue when times are tough.

Side Note: For the first time in its history, Microsoft recently issued long-term debt. They plan to use these funds for general corporate purposes, including possible acquisitions and stock buybacks. It appears the corporation does not want to spend any of its “shock absorber” cash for normal business expenses. Gates wants to keep this safety net in the business going forward.

The majority of financial planners recommend clients create emergency savings accounts, which hold three to six months of living expenses. This “emergency savings account” is then only to be tapped into to cover unexpected big expenses or a loss of income. It is not for frivolous purchases. This emergency savings account is a shock absorber for your personal finances.

You’d probably agree that such an account is important for your personal finances. But what about your business? We real estate agents don’t really have the same kind of regard for our business finances. We should have the same kind of shock absorber in place. We really need two emergency savings accounts — one for our personal finances and one for our business.

In hindsight of the past two years, this probably makes a lot of sense to you now. Hopefully, you had cash set aside for leaner times before the leaner times hit. Regardless, this is a lesson we all need to learn now. Gates is not one of the world’s richest men by accident; he’s in that position because of long-term thinking and contingency planning. Gates has backup plans. He plans for problems in advance.

What are the average monthly expenses for your business? Get your number, then set a goal to save six to nine month’s of your business’s average expenses. As the market rebounds, make a real commitment to set aside a portion of every commission check and put it toward your shock absorber. This shock absorber will protect the business and let you stay focused on long-term goals.

One more thing: Once you have the shock absorber, follow Gates’ lead and don’t spend it until absolutely necessary.