Business Savings Plan: Emergency Fund & Cash Reserves

“Cash is King” is very true in personal and business finances.

Every business needs a savings plan as part of their budget.  This plan can be used for many different reasons and can easily be done with some discipline.

Why does my business need a savings plan?

1. It’s a given in both life and business, emergencies are going to happen and they will try to negatively impact your finances.  Not only do you need an emergency fund for your personal finances, but you also need one for your business.  If you are prepared then you can lessen the blow and ultimately survive another day to run your business.  I would recommend at least 3 – 6 months of operating expenses for your business be saved for your business emergency fund.
2. Savings can help your business stay out of debt.  If you plan ahead with your savings you can pay cash to fund the hiring of new employees and for things like equipment when the time is right.  Many businesses go into debt in order to obtain items such as these.
3. Taxes are another reason to have a business savings plan.  After you have done everything you can with your CPA or tax professional to minimize taxes, you will need to have saved money in order to pay your taxes.

What are some business emergencies I might not have thought of?

1. Having a handful of clients/customers that make up a vast majority of your business revenue.  This can be dangerous if that particular client/customer decides to shop around or goes out of business.  Make sure you don’t have all your eggs in one basket so to speak
2. The industry you are in suddenly takes a hit for various reasons such as:  Economy, natural disaster, more competitors, changes to the industry etc.
3. Your equipment wears out or breaks down.
4. You find your business grows rapidly and then you are understaffed, need more materials, etc.

How should we start our savings plan?

1. Get Committed to taking control of your business finances.
2. Sit down and do your business budget.  Look at what your typical income and operating expenses are for a month.  Take note of where you can cut back on expenses in order to get money for your savings (or to knock out debt if you have business debt).
3. Set aside a percentage of your income each month for your savings and taxes based on the budget you did.  Make sure you put this in a separate account so that you know it is designated for savings.  Even starting with a small amount each week or month going into savings, this can start to grow over time.  It helps to have a solid business and personal budget in place in order to feel comfortable and focused on setting the income aside for savings.

Again, every business needs a savings plan that involves saving for a specific purpose as well as setting aside for an emergency fund.  Don’t put it off until the last minute, get started on your business savings plan today. Please contact us if you have any questions.

We would love to hear from you on how you were able to stay on either your business or personal savings plan, or how your emergency fund has helped you. Comment and leave us your story.