All businesses will occasionally come up against challenges they cannot predict or control. Their office building might get flooded or damaged during a natural disaster. Their employees might become sick and unable to work. Equipment or technology might unexpectedly stop working and prevent orders being created and dispatched. As well as being disrupting, these challenges can put a phenomenal strain on your business’s financial state. You may need to pay for replacements, repairs or extra staff to get your business up and running again. But how can you do this if you haven’t got any spare money to work with?
This is why creating an emergency fund for your business is so crucial. They provide you with some backup money to fall back on which you save up over time. This provides both stability and protection during these stressful situations. As well as helping keep your business afloat. You can pay your employees and get the vital repairs and replacements your office might need. As well as being beneficial to your business, it can also benefit your personal life too. It allows you to continue paying your bills and supporting your family.
Unfortunately, many new startup businesses fail to start an emergency fund and often regret it later on. This is usually due to lack of planning and foresight, as well as trying to keep expenses down. The thought of putting a large sum of money aside, just in case, can be off-putting, and many people feel it’s unnecessary. You can and should get insurance for your business, but this won’t always cover every eventuality. Taking out loans and having to repay them can also put more financial strain on your business in future.
So even though you might only just be getting your business off the ground, use this guide to get your emergency fund started today!
Open a new account.
Before you start saving money for your emergency fund, you need to open a new account. This is beneficial because it keeps the fund separated from your business and personal bank accounts. It will be difficult to establish which money is designated for financial emergency situations if your money is all in one place. This may also increase the chances of your dipping into your fund unnecessarily. So visit your bank and open a new account that you can pay into and access quickly. A basic savings account is often a popular choice with business owners. Opening an account that doesn’t provide quick and easy access will be pointless. When an emergency situation occurs, and you need money now, you don’t want to wait a week for it.
Talk to the staff at your bank and ask them to explain each account option with you. Always go for an account that doesn’t incur fees and charges. But also look for one that has a good interest rate too. It might also be worthwhile seeing what other banks are offering to ensure you’re getting the best deal. You should also decide how you want to pay money into your new account. Would you prefer doing it online or pay in person at a local branch? Most banks nowadays will offer both options so choose the option that works best for you. Once you’ve opened your account, tell yourself that the money you put into it is strictly off-limits. Be firm with yourself and avoid the temptation of dipping into your emergency fund. It’s never going to grow if you are always taking money out of it. Plus it can leave you vulnerable once a financial emergency occurs.
To keep track of your emergency fund, download your bank’s app if they have one. These apps give you access to the balance of your accounts and allow you to transfer money into them. This can help you feel more in control of your emergency fund. It’s also a more convenient way of paying in money on the go. As your business is still relatively new, any time-saving method will be appreciated. You might also want to start a spreadsheet that you fill in each time you pay in a sum of money. This should be easy to edit and access on your computer or phone and be regularly updated.
Set a target.
Setting an approximate target should be your next priority now you have an account open. Most business owners aim to save a minimum of at least three months worth of expenses. Look at your business’s financial records to help you establish what your target should be. This should include monthly wages, bills and rent. Once calculated, you should have a rough idea of just how much you need to save. Use this to give you focus and don’t be afraid to aim higher than this number. The more money you have saved, the better in most financial emergency situations. Reviewing your financial records will also make it easier to establish how much you can save each month. This will vary from month to month as your business goes through quieter and busier times of the year. If your business is going through a period of high profits, use this opportunity to put more money into your fund. This will make up for times when you have less revenue to work with.
To reach your target, you will need to see if there are any business expenses you can reduce. To do this effectively, you need to review your expenses in detail. Establish just how much you are paying for each item and whether you might be overspending. Go online and get quotes from other suppliers and outsourcing companies to see if you can pay less for the same quality. You could also negotiate with your current suppliers to see if you can get a more cost-effective deal. Another option is to see if you can find a new way of packaging or transporting your products that cost less. Even saving a small amount from each area of your business can have an impact on your emergency fund. Use this new information to update how much you can put away each month.
As well as reducing your expenses, you also need to develop a saving timeline. This will make it easier to stay on track and gets you into the habit of saving a little each month. It’s unlikely you will be able to pay in a lump sum at this stage. Realistically, it could take you months or even years to reach your target. Once you’ve determined how much you can save each month, work out how many months it will take to accomplish your goal. You can use a calendar or diary to help you do this. Then choose a suitable date each month when you pay into your savings account. It could be the first of the month for example. You will need to ensure your timeline also includes events which could affect how much you can save. This could be business travel or the launch of a new product or services. Also, consider your personal commitments including family holidays and birthdays.
Don’t just consider cash.
As well as saving cash in your emergency fund, it can also be beneficial to consider other valuable assets. If you are unable to access your accounts for whatever reason, you can use these alternative assets in the meantime. You could consider investing your money in stocks for instance. If researched and chosen carefully, these stocks can rise in price, giving you more money that you initially bought them for. While there is no guarantee you will get a large payout from the stocks you buy, it might be a suitable backup you could use. Don’t put all of your savings into investments. This can be too risky so designate an amount and only use this for investment opportunities.
Before you start investing in stocks, talk to an expert who can talk you through the process. You might want to visit financial blogs or contact a stock exchange website. They will then be able to suggest some low-risk stocks you might want to consider investing in. The price of silver, for instance, is continuing to rise and could be a beneficial market to invest into. You can view prices here for more details. Remember that you’re using these stocks as a cash backup for an emergency situation. Listen to their advice and don’t make impulsive and ill-informed decisions. Ideally, you want stocks that are going to rise in price to make your investment worthwhile. You should also ensure you can sell your stocks quickly and without a lot of hassle.
No matter what kind of business you are running, starting an emergency fund can be a smart decision to make. Not only will it give you a peace of mind. But it will also cause less stress and upheaval to your personal and professional life. So start putting money aside today to get your fund started as soon as possible. You never know when a financial emergency might present itself.