When the COVID-19 pandemic hit, many businesses were unprepared for the unexpected economic blow. Business owners found themselves in a deep financial hole as they struggled to keep their operations afloat. Meanwhile, others turn to an estate attorney to help them protect and preserve the assets they worked so hard to build.
Whether it’s a pandemic, lawsuit, natural disaster, or serious illness, unplanned events can bring your business to a grinding halt. To prevent future losses, we’ll discuss ways to build an emergency fund for your business.
Set a savings goal every month
Your initial attempts to save money may seem overwhelming at first; you want to allocate as much money as possible in a short period. The truth is, stocking up your emergency fund can’t be done in just one swoop. But you can make the process much easier by setting a manageable amount to reach your monthly goals.
When it comes to setting financial goals, it’s better to make your goals something you can reach. Anything that seems unrealistic may seem daunting, which may discourage you from saving. Setting small and achievable targets will keep you on the right track. Once you start, don’t overthink about the amount you’re already making because it will only cause more pressure on your end. You can set monthly or yearly goals as you progress based on your financial end goal.
The amount depends on how much you’re willing to allocate. You can set a specific percentage from your monthly profits or set a target amount for each month. Breaking down your business’s cash reserve can make saving less intimidating. It can also motivate you to continue your saving habits once you see the figures growing in your bank account.
Separate your business and personal account
You may have heard this many times, but we cannot stress enough the importance of separating your business and personal savings accounts. Most business owners have a habit of combining their business and personal expenses. This approach can lead to even bigger financial issues and even legal consequences. More importantly, combining your savings account for personal and business use can make tracking cash reserve a huge challenge.
You never know if something bad turns out, whether in terms of your business or personal finances. Mixing them up will make it difficult to look for extra funds.
Choose where to keep the emergency fund
If you have an existing business bank account, you may consider using the same bank to open a separate account for the emergency fund.
When setting up the initial account, you can choose between a checking or savings account. As your money grows, you can distribute the fin in another account or a money market that provides a larger return than a regular savings account. Also, make sure to leave enough money in your initial account for easier access if an emergency or disaster happens.
Identify when to use the emergency fund
Emergencies occur in different forms and at varying levels of severity. When a natural disaster happens, you have to handle your cash flow carefully. That’s why it’s important to determine which events will require you to tap into your emergency fund.
- Natural disasters: Hurricanes, fires, tornadoes, floods, and other extreme weather events can disrupt your business operations for a few weeks or several months. In these periods, you need an emergency fund to keep you prepared for unexpected expenses, such as paid leaves, property damage, product loss, equipment repairs, and other extensive damages.
- Illness: Whether you or a key employee get sick, it’s important to have extra money to keep your business operating, especially when you’re lacking critical components.
- Social unrest: Although this may not directly affect your business, events such as riots and protests can prevent you from running your business. Your emergency fund will help you pay off your utilities, rent, and supplies while you’re away.
- Pandemic: With the recent economic impact of the COVID-19 pandemic, many business owners realize the importance of having an emergency fund during these difficult times. Although an emergency fund isn’t enough to keep your business afloat in the long term, it can still prove useful to avoid further losses.
Finding extra money to build your emergency fund can be daunting, especially for small businesses on a budget. Our suggestions above are useful ideas to help you regularly contribute to your emergency fund. As you progress, you’ll discover other strategies to create other sources of financial aid and give you peace of mind if something unexpected arises.