Financial emergency. Those are the last two words that any business owner wants to hear.
After all, money’s the life-blood of any enterprise. Lose large sums of it unexpectedly and you’re always in for trouble.
Indeed, at the best of times, 29% of start-ups fail as a result of running out of cash. Throw anything like big bills, bull markets, or broken equipment into the mix, and bootstrapped businesses can really start to struggle.
You can never tell what type of monetary emergency’s going to take place. One thing’s for sure, though: sooner or later something’s going to happen and unexpected expenses will ensue.
Prior preparation is vital if you’re going to mitigate the potential impact on business. Are you wondering how to prepare effectively for such cash-related calamities? Let us help.
Read on to learn exactly how to prepare your business for a financial emergency.
Have a Designated Emergency Fund.
Let’s talk savings.
These days, many people don’t have any. They get caught in a cycle of keeping up with the Jones’ and spend more than they put away. They shoot themselves in the foot as a result, having nothing in the bank for when a financial emergency does occur.
Needless to say, your business can’t afford to take the same tack.
You need to be proactive in saving up for a rainy day. Having a so-called ‘emergency fund’ will ensure that you’re covered (at least for a time) should something unexpected happen.
The exact amount you put away is up to you. However, having access to three to six months’ worth of expenses should be enough to help weather any storms that arise.
Keep Your Overheads Low.
Reducing your expenditure is vital too.
It’s about trimming the fat wherever possible. Running a lean operation that doesn‘t overspend unnecessarily. Businesses must be run efficiently and cost-effectively.
The alternative doesn’t bear thinking about. You could be hemorrhaging money unnecessarily; losing cash on outdated systems, excessive man-power, and unpopular products and services.
Always search for ways to streamline operations and cut your overheads. You can then funnel those savings into your emergency fund to help prepare for any financial problems around the corner.
Pay Off Your Debts.
Debt repayments are never more burdensome than when a financial emergency strikes.
Imagine, for one reason or another (be it a global pandemic or a natural disaster) that demand for your product or service dries up overnight. Suddenly, you face the same debt repayments but with less cash coming in.
It doesn’t take long for the pressure to mount.
That’s why it makes sense to pay down debt when the going’s good. That way, when disasters do happen, you’ve got one less set of monthly outgoings to worry about.
Avoid Taking On Unnecessary Debt.
Paying down debt is almost secondary to taking it on in the first place.
Leverage can be a useful tool with which to expand your business. As we’ve seen, though, it can all too easily catch you out as well.
Imagine taking out a loan one day and an economic recession hitting the next. Through no fault of your own, you get lumped with repayments that you can no longer afford. Make sure that you are sensible and only use debt when it will benefit you, not damage you.
Protect Your Credit Rating.
Here’s where things get complicated.
Sometimes, in certain situations, accessing credit can be a lifeline to struggling businesses. Debt might not be the ideal solution, but it may well be the only one available.
Imagine that a business relies upon a particular vehicle, or piece of equipment, to operate. Now imagine that said item or vehicle breaks and they lack the cash to get it repaired. In situations such as these, taking out a loan from companies such as HCF is probably the best option.
That cash injection can cover the cost of repairs and ensure they get back up and running again. They can then use their revenue to pay down the debt.
These kinds of examples highlight the importance of having a good credit score. It’ll help ensure that you can access a loan when you need it, and won’t pay exorbitant rates of interest.
Increase and Diversify Income Streams.
Businesses can never make too much money.
Emergency or not, increasing revenue is the name of the game. For one thing, you can invest in growth and development. For another, you can more easily pay down debts, handle bills, and augment those ‘rainy-day’ savings.
All too many businesses get caught out when their one and only income stream dries up. Maybe they’ve come to rely too heavily on one client, one contract, or one product. Then, one day, for whatever reason, it gets snatched away and their primary source of revenue goes with it.
Diversification stops that happening. Having multiple sources of revenue alleviates the strain of losing one of them.
Have Insurance Coverage.
Finally, make sure that you have appropriate insurance coverage in place.
This is financial disaster avoidance 101! Being insured means you have a fall back in case emergencies occur. That’s useful from a practical perspective, but it should also help to reduce your stress levels.
The key is ensuring that you have appropriate coverage.
Some emergencies are impossible to predict, which makes acquiring relevant insurance similarly challenging. More often than not, though, there are particular issues that you know might arise and that are worth protecting yourself against.
Run a risk assessment and work with the professionals to figure these out. Take out an adequate insurance policy and you’ll sidestep the financial implications of any unexpected issues that arise.
Time to Prepare for a Financial Emergency.
Unexpected expenses are a nightmare for any enterprise but there’s no denying that they happen. Just look at the recent global pandemic and ensuing economic turmoil that’s taken place.
Clearly, everybody in business must take steps to prepare for a financial emergency. With the right forethought and appropriate action, you can save yourself all kinds of trouble down the line.