If you start a small business, you sign up for the volatility. Recessions, business cycles, product disruptions, and unforeseen costs can run any sizable business down. While larger businesses have deeper pockets, small and medium-sized business must rely on external sources like Cash Stop and banks for emergency expenses.
To cushion the blow from a business crisis, businesses must save up and keep some funds aside. This emergency fund can cover the overheads and keep the business afloat no matter how dry the top-line gets. Having a sizable chunk of cash set aside could mean the difference between bouncing back or declaring Chapter 11. So, here’s how you can create an emergency fund for your business:
1. Track Spending
You can’t manage what you don’t measure. Track every expense and cash flow on the books. Your best bet is software that tracks all the expenses for employees, suppliers, and customers in one place. This will give you a broader view of your business’ finances and help you make the right decisions for cutting costs and saving up.
2. Make Saving Part of The Business Plan
The biggest mistake most business managers make is keeping money aside when it’s leftover. Savings shouldn’t be an afterthought. It should guide every step and operation of the firm. Create a business plan and deploy a pricing strategy that helps you generate free cash flows that you can easily set aside without affecting operations. Plan ahead for all the upgrades and reinvest you think the business will need and start working on it as soon as you can.
3. Automate the Savings
Your bank should allow you to set up an automatic transfer from your business checking account to a savings account. Automating savings will help you stick to the plan and create the fund without thinking about it. Adjust the amount so that it is high enough to help you create your emergency fund quickly but the daily withdrawals don’t impact your operational cash flows.
4. Look for Tax Savings
Regularly examine your taxes and financial plan with your company accountant to make sure you aren’t overlooking some savings. Taxation rules and regulations change frequently and there’s likely to be a few grants, tax rebates, or special incentives on offer which you may not have considered before. The savings from efficient tax planning should help you get your emergency fund set up quicker.
5. Lay Down The Rules
Make sure your team understands the importance of the emergency fund and knows when it can be deployed. Set some rules and guidelines for the use of emergency funds. Keep a track of every withdrawal from the account to make sure the money is only used for genuine emergencies.
Creating an emergency fund for your business is like generating your own insurance policy. Sooner or later all businesses hit a rough patch, but with a sizable emergency fund you can keep the company afloat longer than your competitors.
Author: Oliver Curtis
Hi there. I’m Oliver. I’m just a young boy from the outskirts of… Okay, that’s a lie, I’m not a young boy anymore, although I certainly feel that way at heart.