I know anything can happen, and I want to be prepared. How can I properly prepare for business emergencies?
The best way to get through business emergencies is by having a fund set up for just this purpose. When rough patches hit, having a plan in place can make all the difference. There are three common circumstances in which your business can benefit from having an emergency fund.
Why does my business need an emergency fund?
1. Cash flow problems
According to The U.S. Bureau of Labor Statistics, 82% of new businesses fold because of cash flow issues. Don’t let that happen to you! Your business can be tight on cash because it’s your slow season, you’re waiting for outstanding invoices to be paid up, or you just depleted your funds for a huge marketing campaign.
Having funds available to keep you afloat when you’re short on cash will allow you to steer clear of expensive loans, or a complete business failure.
2. Actual emergencies
Emergencies in businesses can take the form of damaged goods or property, stolen merchandise, or broken equipment. While you may be insured against these losses and damages, it can take time to file a claim and recoup the loss. Having liquid funds available during times of crisis will enable your business to continue operating while you recover.
3. Timely opportunities
Occasionally, you’ll come across a fantastic deal that can help you expand your business or launch a new product line. It might be a great location for a storefront that just hit the market, or a line of top-quality goods at an excellent price. Your emergency fund will give you the freedom you need to help your business grow.
Setting up your emergency fund
The ideal business emergency fund will have enough cash to get you through 3-6 months of business expenses. The exact amount of funds you’ll need will vary with the nature and specifics of your business.
The idea of saving up thousands of dollars might seem daunting, but if you set your mind to it, it can be very doable. Set your goal and then build your fund a little at a time by trimming your business expenses and putting every extra dollar you earn into your fund.
Make payments to your emergency fund a regular item in your business budget and set up an automatic monthly transfer to it so that you never forget. Stay away from risky business ventures until your emergency account is completely funded.