If you put measures in place to protect your business during the good times, you’ll have no problem running your business during bad times.
The sad fact is most new businesses fail within a year due to running out of follow up funds to keep their business afloat.
With this in mind, here are a few reasons to set up a business emergency fund for your business.
1. Backup for Slow Payers and Non-Payers
In business, there will be times when clients, customers, and other business partners owe you money for sold services or products and will miss the due date.
It is always important to set out funds for such occurrences, don’t always assume that this funds will arrive. Though, in most cases it will, but your cash-flow will be affected whenever there is an issue with payment.
Emergency fund will act as both a buffer for slow payers and a backup for non-payers. If you don’t account for this disruption, it’s effect can bring your entire business down.
2. For Immediate Purchases
Efficient businesses always have a budget of what their cash will be spent on. However, there are times when something different catches your eye. Perhaps a supplier has a bulk discount on a product or you are interested in some new tech product that can improve an aspect of your business immediately.
An emergency fund gives you the freedom to make these quick purchases.
3. Unexpected Expenses and Emergencies
The key reason for a business emergency fund is for unexpected emergencies. Emergences could come in form of fire accidents in the office, computer network getting hacked or health issues with staff. So you’ll certainly need money to get things back on track.
4. Temporary Drops in Revenue
Different factors can affect the revenue of a business negatively. It can be political, seasonal or something else.
This is why it is important to have enough money in the pot when business is down, so you can take advantage when business picks back up again.
5. Legal Costs
There are different kinds of legal costs associated with running a business, from drawing up business contracts, getting sued by a client or another company or even filing a lawsuit yourself.
Unfortunately, the cost of legal proceedings are expensive and can easily become overwhelming, which can result in a financial crisis for your business. An emergency fund can protect your business against such occurrences.