Why Having An Emergency Fund Is Crucial For Your Small Business

Running a small business leaves little room for error when it comes to your business expenses. While you can do your best to plan ahead, sometimes life has other plans. For example, unforeseen equipment breakdowns, severe weather or natural disasters, or health issues can lead to a business suffering from an entire operational shutdown. Surprise expenses are not a matter of if, but when. We often work with business owners who do not have an emergency fund available making these situations even harder to work through.

Usually, these unavoidable life situations result in unavoidable expenses. Having an emergency fund that provides quick access to cash, a line of credit, or having access to alternative sources of business finance will help maintain your business throughout emergency situations.

How Do I Start?

You may be asking yourself, “How do I start an emergency fund?” The answer is to start small. We understand that businesses need to grow before they are able to start saving. Once your business is stable and you are able to gain an understanding of your revenue and expenses, you can start to put money aside towards an emergency fund.

How Much Money Should I Save?

The amount of money that you decide to put aside in savings will depend on how long the business has been established. A good rule of thumb for a new business is that you should aim to have at least one month’s worth of expenses put into an emergency fund. As your business grows and becomes stable you can continue to add to this fund to cover up to 3 month’s worth of expenses.

What Is The Most Important Thing To Remember?

The most important thing to remember is no matter how much money you are able to put away, you will need to ensure you can access it immediately in case of an emergency.

What If My Emergency Fund Does Not Cover My Expenses?

Sometimes the emergency fund does not have enough cash to cover all of the necessary expenses. Having other cash lifelines put into place will add an extra layer of security to your business.

Open Up A Business Line of Credit

A Business Line of Credit is a flexible funding program that allows you to draw money as needed. Take the time to research affordable business line of credit programs before an emergency happens. Business owners who are in an extreme rush often find themselves paying high-interest rates than needed just to gain access to funds immediately.

Open Up A Business Credit Card

A business credit card can offer many benefits to small business owners. You have the option to accrue rewards like points, miles, and cashback depending on the credit card company. You can use the business credit card for smaller emergency expenses and allow your business to remain stable during a time of unplanned. Spend time researching different cards prior to an emergency to avoid having to open a high-interest card that has expensive annual fees. Always do your research prior to applying for a new business credit card.

Invoice Factoring

Invoice factoring is a way for businesses to receive money from outstanding invoices before the customer has actually paid. For businesses that need a constant supply of materials to cover multiple projects, such as the construction industry, having access to extra funds is necessary to maintain output and foster growth.

Because every business and industry is unique in its needs, it is important for you to take a look at your current finances. Set a reasonable savings goal, start small, and continue to create your emergency fund.

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