Building an Emergency Fund for Your Business

Every business needs a rainy-day fund, but a commitment to action for accomplishing this objective is often elusive. Waiting to see how much money is left for your virtual piggy bank after paying all the bills is not a viable solution. There’s never enough unless you take steps to control spending.

An effective method to build a cash reserve is to make a place in your budget for the emergency fund as if it were another vendor bill. Adding this cost of doing business may seem impossible at first. But close examination of your recent spending categories is certain to reveal some areas for expense reduction.

Look at the trends in your business spending. Are some types of expenses rising? Buying more is common when a business starts generating a little more revenue. Finding your previous spending level and returning to it merely requires inspection of historical expenses. Perhaps your vendors’ prices have increased. This is an opportunity to negotiate volume discounts, find different vendors, or raise your own prices.

Most important of all in creating an emergency fund is putting aside the additional income you make from an extraordinarily profitable month or period of the year. Completing a particularly large project or seasonal phase means you have more cash to retain for future lean periods.

Keeping a separate bank account is usually best to avoid the temptation of extra spending. This same account functions as a place for those ongoing deposits of small fixed amounts every month until the inevitable disaster strikes. When it does, your rainy-day account provides the perfect protection.