How to Build a Business Emergency Fund in 8 Steps
An emergency fund is an essential part of a solid financial plan. It can help you pay unexpected expenses and avoid taking on more debt from high-interest credit cards or loans. You can build up your business cash reserve account in several ways:
Determine Your Needs. The first step is to determine how much you need in an emergency. Your needs will be unique, depending on your business. A rule of thumb, 10% of your annual revenue might be a good benchmark.
Set Reasonable Emergency Savings Goals. Start small so you can meet your monthly savings goal than struggling to hit a bigger number. Set small, achievable targets for your monthly savings, and increase the amounts when you’re comfortable that you can handle them without hurting your business.
Save Consistently to Build Your Cash Reserve Fund. As with any savings program, you need to put together a plan and follow it consistently. Commit to putting a certain amount of money aside each month. One of the easiest ways to do this is to save a percentage of your monthly revenue.
Automate Business Emergency Fund Savings. An effective way to build a financial cushion for your company is to open a separate account and set up a monthly deposit from your business account. Then savings can happen without requiring you to manually move the money each month.
When Business Is Good, Build Up Your Financial Cushion. When you have a good month financially and a better net profit, put a little extra into your emergency business funding until you reach your goal.
Check for Nonessential Expenses. Certain expenses are unavoidable. If you have a mortgage on your property, you need to make the monthly payment. You’ll need to pay utilities and employees if you want to stay in business. However, other items aren’t essential.
Protect Your Business Emergency Fund. It can be tempting to dip into your emergency fund for things that aren’t emergencies. Avoid the temptation to do that if at all possible.
Don’t Stop Building Your Cash Reserve Fund. When you reach your goal, take a breath and congratulate yourself. It’s a big step. Consider continuing to save and building your cash reserve fund to create an even bigger financial cushion.
Setting up a business cash reserve fund also provides peace of mind. You’ll sleep better knowing you have some money set aside to handle emergencies. If you'd like to learn more about how we can take managing your business finances off your plate and help you grow your business, schedule a call with us today!