Why Businesses Should Have Emergency Funds

Why Businesses Should Have Emergency Funds

Anas Bouargane 01/07/2020 6
Why Businesses Should Have Emergency Funds

Planning is essential to ensure the success of a business.

There are many little details that need to be planned, that sometimes one of the most crucial things when it comes to planning is overlooked. While many small businesses consider financing to be one step ahead of the game, it is also important to keep some extra funds aside just in case. If you’re wondering what the reason behind that is, here’s an explanation of why businesses should have emergency funds.

Why Businesses Should Have Emergency Funds

To Seize Opportunities

You never know when the next big thing will come up just around the corner, or when the deal of a lifetime will be presented right in front of you. While there are many short term funding options, you’ll need to do a whole lot of research to make sure you don’t go into debt. Because most short-term loans come with high-interest rates in order to provide you with a fast amount of cash easily, it is best to save yourself the hassle and have an emergency fund that prevents you from needing to take out a loan. However, there are options online that could be beneficial and will help give you the ability to seize the opportunity and allow your business to expand without having to worry about cash flow.

Emergencies

It’s called an emergency fund for a reason and it is to help get you out of a rut when you need it the most. While you could be insured or covered against product theft, damage, or even the property being burnt down, there are other emergencies where you’ll find it essential to get access to money instantly. Securing an emergency fund will allow you to keep your business afloat and prevent it from going bankrupt. Insurance also takes a large amount of time to process, and you never know how much money you’ll actually be getting. So, in order to keep your business running and avoid losing it altogether, it’s best to set aside an extra cash flow to allow you to keep the business operating when need be.

Cash Flow Problems

Your business could be doing very well on paper, but sometimes your cash flow can be in trouble because things take longer to process than expected. Let’s say, for instance, you offer invoices and credit options to your consumers and you haven’t received any money for a while. You could easily find yourself struggling to keep the business running as there is no cash flow coming in. Instead of freezing your business or having to lose future deals just because there hasn’t been any cash flow entering, you could set up an emergency fund and keep something as small as 10% of your profit aside to allow you to have some funds when needed.

Why Businesses Should Have Emergency Funds

Expansion

Deciding to grow your business will need more money in the process. Let’s say you decide to open another branch, store, or even just double the number of products you need to make. How are you supposed to pay for that? Unless an investor is coming on board, or you decide to take out a loan and bear the risks and finances related, you’ll need to have already planned ahead. Take this moment into consideration by saving up a small sum each month that you are only allowed to use in emergencies or for future prospects of expansion. You get to decide what counts and what doesn’t, but when you feel the demand is high, sometimes it is best to try and ensure that the supply is available to meet the demand. This will help your business grow and will help you step out of the small business classification eventually and start being a bigger company.

Financing Issues

It’s quite easy to find yourself facing financial problems as a small business, especially when you don’t have a financial analyst or accountant. While you might think the business could be doing well, you could find prices have easily gone up more than you expected, and the running costs are increasing beyond your capabilities. While you will need to raise your prices, too, it takes a while to pick and until then, your emergency funds will be your gasp for breath.

 

Running a business isn’t an easy task, but you always need to prepare for the future and any possible mishaps that could happen. Setting aside an extra bit of cash on a regular basis will help you be prepared for whatever comes your way without it affecting the business or its ability to stay afloat. All it takes is some good planning and the ability to think about the future rather than just the here and now.

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  • Robert Heveran

    Thanks for the great content

  • Paul Johnson

    Always had a stash of cash and savings in another bank but hadn't thought through all these details.

  • Danny Harris

    I kept too much money, too long in my local bank. Now that I switched, it’s fun to see meaningful interest accumulate.

  • Antonio Machado

    Great one !

  • Nicola Adamson

    Great article

  • Stephanie R

    I think saving 12 months would help my anxiety of losing income again and having that fund to cover expenses when business is slow

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Anas Bouargane

Business Expert

Anas is the founder of CEF Académie, a platform that provides guidance and support for those willing to study in France. He previously interned at AlphaSense. Anas holds a bachelor degree in applied economics from the University Paris Sud.

   

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