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Small Business

A Small Business Emergency Fund is critical to the sustainability of Businesses today

By now, more than a few businesses have realized that they need – or needed – an emergency fund.

The coronavirus pandemic quickly caught businesses off guard. A fortunate few had the type of business that was not affected by shelter-in-place orders, but many, many others were hit hard by the double-whammy of lost business and a lack of a rainy-day fund. Time to rectify that second issue.
According to the Sure Payroll Small Business Worry Index, “Due to the nature of small businesses, it can be hard to ensure there is enough cash on hand for business expenses and payroll. One finding from the study showed that 1 in 4 small business owners worry about being able to cover payroll at some point in the year.”
All of which begs the question: How do you create a rainy-day fund and how much do you need? It’s really just a simple 4-step process.


Step 1: Analyze your core expense

Make a list of the expenses that you have to cover every month, things like:

  • Payroll
  • Rent
  • Taxes
  • Insurance
  • Utilities

Other items, the ones that are more wants than needs, should not be on this list. That would include items such as marketing and entertainment.

Now, multiply that core number by three. That is the number of months of overhead you ideally will (eventually) set aside, alternatively, while things are going good, you may want to consider financing your “rainy” day fund. If your core expenses are $5,000, you need to begin to save or secure that $15,000.

Step 2: Chunk it down expense

If you look at $15,000 by itself, it will likely look like an insurmountable mountain. But guess what? No one climbs a mountain in one step. Mountain climbers chunk it down.

According to the outdoor adventure retailer, there are several steps to take when planning to climb a mountain. Three of the four are relevant for our analogous purposes:

Get a guide. See Step 3, below.

Start training. This is essential in mountain climbing as it is in saving. For many people, saving does not come naturally. Neither does mountain climbing. The only way to climb that mountain is to begin small, practice, and get in shape. Start saving small, but get in the habit. Since saving is not a common practice in some cultures. Some people do what is called “forced” savings. They borrow the money and set it aside while they pay it back on a monthly basis. 

Choose a route. There are several routes to get to the top of a mountain. Some are easier than others. It begins by planning the trip, picking out a base camp, and plotting rest areas and important markers along the way. Again, this is the same process for creating a rainy-day emergency fund. Pick a reasonable path and start climbing.

So that’s the idea. Come up with a savings plan, start small, get in shape, and then begin to execute on your plan step by step. Yes, it will take practice and hard work. Climbing a mountain is not easy. But others have done it and you can too.

Step 3. Get help

Making and hitting financial goals can be challenging, and that is why bringing in an accountant or financial advisor makes sense. Meeting with a financial advisor can help you understand how best to begin, where you can safely cut back, how to save, and even invest will help ensure that you are making the right choices. 

And, having an advisor who understand the finances of your business can also help if and when you do have an emergency down the road.

Step 4. Commit

The key here is to work at this each month until you reach your goal. That takes good old-fashioned commitment. So consider and remember the wise words of W.H. Murray in his book, The Scottish Himalayan Expedition (1951):

Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. The moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision which no man could have dreamt would have come his way.

In the end, by committing to a plan, not only will you not be caught off guard in the future but your business just may be the one to help carry someone self to along the way, because we have come to learn all so well that we are all in this together.