It makes shrewd business sense to build an emergency fund, cash put aside for a rainy day. Businesses that fail to have a ‘safety net’, a sum of money kept aside to pay for unexpected expenses, can find themselves in a whole host of trouble.
When working on a tight financial leash, for many businesses, creating an emergency fund can be easier said than done. The good news is, with a little astuteness and know-how, businesses can save for an emergency fund without really noticing.
Small Business Trends looks at 20 tips for building a business emergency fund.
Tips for Building a Business Emergency Fund
Got a Tax Refund? Save Instead of Spending It!
Having a tax refund arrive through your letter box is always a nice surprise. And surprise is the operative word here, as instead of going out and spending this refund you didn’t expect, make it the first instalment in your business emergency fund.
Spare Change? Put It Into a Savings Tin
It might be a lucrative way to encourage children to save up, but you may be surprised at just how much your company could save by tossing spare change into a saving tin.
Cut Back on Business Trips
Is that business trip to New Orleans really necessary? Or could the meeting be conducted remotely via teleconferencing software?
Take stock of how much your company is spending on business trips, and ask yourself which trips are absolutely essential, and where savings can be made. Use the money you save on cutting back on business trip expenses to put into an emergency fund.
Save when the Going Is Good
Is your business seasonal? If so, and you take in higher profits during particularly times of the year, seize the opportunity to use the high profit months to put money into emergency funds.
Keep It Separate
When emergency funds are simply placed into a normal business account, the urge to spend it can be all too tempting. Instead, keep emergency funds separate from other business bank accounts, so you can keep tabs on exactly how much you’ve got saved in emergency funds, and will resist the urge to spend it.
If you’re a small business, a start-up, or even an established business with a tight cash flow, set realistic goals for emergency fund savings.
Putting too much away for a rainy day might put financial strain on your business. Set realistic goals, start off slow and gradually build up your emergency funds.
Make Emergency Funds Part of Your Business Plan
Statistics show that an alarming number of small businesses don’t have a business plan in place. Business plans are vital in conveying organizational structure, and setting goals, operational milestones and targets.
When mapping out a business plan, include plans and objectives for emergency funds. Putting such funds into an official business plan will mean you are more likely to stick to emergency fund objectives.
Use a Direct Debit
With ease-of-use and without having to worry about making late payments, direct debits come with many advantages to businesses. With clear knowledge of your regular income, direct debits can help improve business cash flow.
Use the ease and convenience of direct debits to help save for an emergency fund. Set up a direct debit to pay into the fund each month. Again, be sensible and realistic about how much you pay in so the fund doesn’t infringe too heavily on your business’s cash flow.
Only Use It for Emergencies!
It might sound obvious, but don’t be tempted to ‘break into’ emergency funds to pay for services and products that, quite simply, aren’t emergencies. Map out what you consider emergencies to be and only use the fund if such emergencies arise.
Put the Fund Somewhere It Can Gain Interest
You shouldn’t lock emergency funds away, as you could find yourself in an ironic position where an emergency has occurred and you can’t get to your emergency funds! That said, all savings should ideally be placed where they can generate some interest to help them grow.
Do your homework and look around for instant access savings accounts offering the highest levels of interest.
Motivate Yourself and Your Team About Saving Goals and Reaching Milestones
Motivate yourself in a similar way you would when making personal financial savings. When you reach a business emergency fund goal or milestone, give yourself and your team a treat, preferably one that doesn’t cost any money, such as a dress down day!
Cut Back on Outsourcing Expenses
Outsourcing business tasks such as marketing and bookkeeping comes with both advantages and disadvantages. Outsourcing might save your business time but, at the same time, it will cost you.
Revaluate your outsourcing expenses and see if there could be cutbacks you could make. With the savings you make by tightening the financial leash on outsourcing, put the money into your emergency funds.
Limit Other Business Expenses
Of course, business trips and outsourcing are not the only expenses businesses can be a tad lavish with. Assess your business expenditure and see where additional savings can be made and put into emergency funds – Is today’s business lunch at a local restaurant really needed, for example?
Steer Clear of Impulse Buying
Resist the urge to spend money on a whim. Every dollar saved or not spent, is a dollar into your emergency fund account.
Consider Your Emergency Fund As a Non-Negotiable Expense
Be serious about saving for a rainy day by treating emergency funds as non-negotiable expenses.
Work With Your Financial Advisor
During the next meeting with your financial advisor, bring the subject of emergency funds up. Let your financial advisor offer support and advice on how to structure your emergency fund savings.
Make Use of Budgeting Tools
Keep on top of your business finances, including emergency funds, by taking advantage of budgeting and bookkeeping software, tools and apps.
Generate Extra Cash
If you’re struggling to find the money to put into an emergency fund, go that extra mile to generate additional cash. From recruiting another member in the sales team or introducing an additional product, generating an additional business income will soon help the dollars mount up in your emergency fund.
Introduce a Savings’ Competition at Work
Motivate employees to reducing expenditures by establishing a monthly competition, which offers prizes to the biggest savers.
Create a More Competitive Climate
As well as encouraging members of staff to making greater savings where possible, craft a greater sense of competition at work. Rouse sales teams by setting sales targets and giving away prizes to the person with the highest number of sales at the end of each month.
Put the additional income both saved and earned into your soon-to-be flourishing emergency fund account.