Building a Safety Net: Your Business Emergency Fund

Starting a business is an adventure filled with excitement and challenges. One of the smartest moves you can make, especially if you are just starting, is establishing an emergency fund for your business. Just as it is best practice to have a personal emergency fund (eg: funds equally 3 months of expenses), establishing a business emergency fund is a safety net that can help business owners cover those "just in case" moments. Plus, it helps alleviate the mental stress of not feeling you have enough in the business bank account to meet expenses during slower market cycles.

Not sure how much your business needs to generate to meet your personal needs and short-term goals? Check out our BUSINESS CLARITY TOOL.

View Details

Think big long-term but start small short-term.

Begin by setting aside a small, manageable amount each month. Even a couple hundred dollars to start will cumulate into a sizeable amount in the long-term. Over time, aim to save enough to cover 3-6 months of operating expenses. As the amounts you are saving increase, I recommend reaching out to a tax expert to minimize year-end taxes that might arise from corporate profits.

Find out what costs are unnecessary and cut them.

Approach this carefully as it's easier to "just cut costs" without thinking about the long-term effects of it. What I recommend is to first look at your costs as investments to the business. Next, ask yourself, does that investment impact your business in a positive or negative way or both. For example, cutting all your social media marketing spend will positively impact your income statement in the short-term. Long-term, however, you may lose future business due to loss of brand recognition or capturing clients who are looking for your products/services online. Once you've determined what is non-essential or what doesn't impact your business, cut those costs down. Every penny saved is a penny closer to your safety net.

Open a Dedicated Savings Account 

Your emergency fund should be easily accessible without being too tempting to use for non-emergencies. Consider a separate savings account or a money market account for your business where accessing those funds may require a few more steps, which would then lead to taking a more informed approach to using those funds. Again, I recommend speaking to a tax expert as there are different taxation levels for corporations when it comes to investing gains.

Automate Your Savings

Set up automatic transfers to your emergency fund. It’s an effortless way to ensure consistent savings without having to think about it.

Reevaluate and Adjust

As your business grows, so will your operating expenses. Reevaluate your emergency fund regularly to ensure it matches your current needs.

An emergency fund can be the difference between weathering a storm and facing a financial crisis. Start building yours today to ensure your business stays resilient no matter what comes your way.