It sounds ironic to plan for the unexpected. But, in business, it could mean the difference between surviving or failing in the event of an unplanned situation.
As a business, you are bound to face unexpected expenses from time to time and it’s necessary to prepare for them. It could be anything from equipment repairs to sudden opportunities that require additional capital you may not have planned.
Whatever the case is, the first step to prepare for the situation is to be in a solid financial state. In this article, we’ll discuss further how you can build an emergency fund.
Protect Your Business From Unexpected Expenses With These Tips
- Build up an emergency fund.
An emergency fund is usually a few months of expenses in the bank for your business. It’s like a rainy day fund which you set aside for when emergency expenses occur. These include:
- Equipment breakdowns
- Utility problems; and
- Unprecedented business growth
Having an emergency fund provides a sense of security that you have enough funds to tide you over in lean times. It also means having enough money when the need arises without resorting to other options such as borrowing money with high-interest rates or tapping your personal funds.
- Track your expenses
Make it a habit to account for everything you spend.
Start by listing your fixed expenses: lease, taxes, insurance, and payroll. Then look at your financial history in the past year, along with your bank and credit card statements to identify the irregular expenses you have paid.
Tally up the amount and whatever is above your regular expenses, factor it in when calculating your emergency fund.
- Cut back expenses where possible
Aside from saving money, also prioritise cutting down your expenses. Review your finances—cancel subscriptions you haven’t used in a while (e.g. SaaS tools you no longer need) and shop around for better rates.
It is also where prioritising preventive maintenance and repairs matters. When detected early, you can address issues quickly, for the less amount you would pay for emergency repairs. It shows that while paying for maintenance may seem counterintuitive, it sure can keep your equipment and utilities in good shape, saving you a lot of money and headaches in the long run.
- Plan Ahead
Concerning the above point, it makes sense to plan for the events that are bound to happen in your business. You cannot accurately consider an equipment breakdown as an emergency expense when maintaining it to prevent such serious issues is one of the responsibilities of running a business.
Protecting your business from unexpected expenses mostly boils down to planning for things that could go wrong. Anticipate them and build up a decent emergency fund—you should be fine.
- Build Your Credit Score
Even with an emergency fund, there will come a time when you will have to borrow money to get started.
Having a high credit score can do several things, the most important of which is proving to the bank that your company has good financial records and is trustworthy. The interest rate on your loans could also be lower. Some of the ways to improve your credit score are as follows:
- Pay your bills on time
- Pay off your debt and keep your credit card balances low
- Do not close unused credit cards
- Apply for a new credit account only as needed
Running a business can catch you off-guard when things don’t go as planned. But, don’t let unforeseen expenses get in the way of your success.
Find a financial modelling company that offers consulting services and financial forecasts and projections to help you create a budget that accounts for unexpected expenses. They can also assist you in implementing strategies to reduce your expenses and further fuel your growth.
Get professional advice on unexpected business costs today.