Why Your Business Needs an Emergency Fund
Is your college business booming? Or are you living quite the opposite, with constantly knitted eyebrows, thinking how to pay for various business expenses? Well, either case should make you realize the importance of having one thing – a business emergency fund.
An emergency fund is a three to six months worth of business expenses. It could serve as a financial buffer against very lean times like when you lose clients, you bill customers later than usual, or one of your ventures doesn’t do well.
If you’ve already experienced financial lows with your business, you should be more determined not to be in that situation again. Start stashing away some of your business profits as the emergency fund.
If you’re the type who hasn’t even dipped down financially and gets adventurous and dares to get penniless, think again. Don’t spend extra cashflow on expensive equipment you don’t need or fancy hardware upgrades. Save for your business emergency fund first, and spend on the exciting extras later.
Don’t even think that a credit card is a good substitute. Like everything, your card has a limit. Your business might stay afloat on it for the first few months but you might pay hard for it for the next few years. Many college students fall into credit card debt and spend several years after graduation trying to undo the damage. Don’t let that happen to you.
It would be better to separate your business’ emergency fund from the account you generally use so you’d be less tempted to withdraw it. Also, consider insuring some aspects of your business such as expensive equipment, personal term life insurance for yourself, etc. These will help lessen the cost when emergencies arrive.
Start building your emergency fund now because more than making you secured during rainy days, it keeps you afloat when it floods.
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AWESOME BLOG! I couldn’t agree more! I would say that money management is the most critical part of your business - even more than sales or service.
I was well into my second company, before I really, really learned financial discipline. I used to effectively piss money away. Now I treat is like blood.
(If you want I wrote an article specifically on this subject, and a technique to building the fund. I call it Blood Money. Tell me if you want it and I will gladly send a copy).