Every day, both businesses and individuals are hit with unforeseen expenses and circumstances that require an immediate response. These expenses may be large or small, but preparing for a worst-case scenario with a “rainy day” fund is the best way to protect your business. No one wants to have to shell out lots of money, but sometimes that is the only option for your business’s survival.
An emergency savings fund depends on a business’s size, industry, day-to-day tasks, and several other variables. Emergency savings should be a set expense every month or quarter in order to build the fund to a reasonable size. Often times, business owners set aside a certain amount of money for unexpected expenses, but do not continually add to it. Adding money in predetermined intervals is vital to keeping the fund afloat.
Developing a Fund for Unexpected Expenses
If only one sum of money is added, and an unforeseen expense comes up and wipes the account, then you have to start over with nothing. Adding a bit every month or quarter makes it more likely you will have money left over after an unexpected expense, and also promotes good savings habits.
Saving more money during periods when your business has higher earnings also helps. This provides for times when business is not doing as well before. Even though this scenario is not an emergency, realizing that your business may have slow periods, and preparing for them, is important. It would be a shame to have to stop operating just because a savings fund was not properly prepared and utilized.
Talking with a financial advisor or analyst can help you determine an appropriate amount to save back each month or quarter, as well as the types of problems or emergencies your company may run into. A contracted CFO is especially helpful because of experience with multiple companies in a range of industries. By talking with you and looking through your financials, a part-time CFO can often identify trends and make educated predictions about your business’s direction. A CFO is trained to understand the financial risks a company has, and so provides you with a plan that includes a comfortable cushion in case you incur such expenses.
A part-time CFO can look through your finances and advise you in the right direction. This advisor will coach you to put away the perfect amount of money; that way you will not put away so much that you are short on cash, but also not too little that you find yourself in a bind when an emergency or unforeseen expense comes up.
Many business owners are knowledgeable about many aspects of their particular company, but talking with an outside financial advisor can helps you acknowledge your plan, strategy, and potential issues from a different perspective. Additionally, this advisor can make sure your financial statements are in order and that you are spending your money in the most efficient way possible. Protect yourself and your business by planning for the future and taking steps to reduce risks from unexpected expenses.