How to Protect Your Business From the Risks of 'Hard Times'

Shalom Solomon

It is true that no business owner fervently hopes and prays to experience "hard times", but hardtimes are an imminent possibility every business owner should be prepared for.
If there's anything we take from the global recession brought on by the 2020 pandemic, it should be the level at which unforseen circumstances can affect a business. 
The pandemic especially for Nigerians came with the lockdown, enforced curfew in some states due to protests, and as if these weren't enough, an increased electricity tariff (NEPA bill) soon followed.

As a result these, businesses were struggling, some had to lay off staff, others folded up completely.
But then, there were businesses, small businesses that managed to remain operational and even pay employees through all this.
It begs one to question how they were able to manage. How were they able to meet up with operational costs when business operations almost went down to nothing?
I'll tell you, they had funds; Emergency fund

What does Emergency fund mean?

When people hear emergency funds, the thought that comes to mind is LOANS, or government grants. Well, the best source for emergency funds is your business' savings.
Let's see what business experts have to say about emergency funds.
"Emergency funds are savings accounts that can be tapped by businesses when they need them - reserves that are not to be touched for day-to-day operations." 
Kristen Elworthy, the balancesmb.

Daniel Kurt, Investopedia

"Emergency fund refers to money stashed away that people can use in times of financial distress."
Lance Cothern, a Business Analyst.
"Emergency fund is money you set aside for when an emergency upends your world and you need money to make things right again." 
Now that we understand that emergency funds do not mean running to get loans or waiting patiently for government grants, we'd go to the next vital aspect.

Photo Credit: Dreamstime

The Importance of Emergency Funds For Small Businesses

It goes without saying that money is most of the times the solution, part of the the solution or instrumental to finding a solution to a majority of crisis businesses experience. We'd go into specifics though - why is an emergency fund important for small businesses?

1. Financial Security

This, I believe is the highest value emergency funds can offer a business owner. Financial security refers to the sense of peace you have when you are not worried about financial crisis. 
This peace of mind obviously would stem from the assurance that you have enough money to cover any emergency money problems that may arise in the future.

2. Reduces Risks

The risks unexpected crisis can throw at a business might cripple it's operations on varying levels. 
Let's use an unextreme example, if say your company driver fails to show up to make deliveries, you can easily draw from your reserve and hire another driver to cover for the absent one.
An emergency fund would protect your business from any risks a surprise problem might incur.

3. Avoid Using Personal Funds

Many people, business owners without an alternative source of income mostly resort to taking money from their personal savings or worse, sell off personal properties.
An emergency fund would buffer your business during financial crisis, you'd have no reason at all to dip into your personal savings to meet up.with operational expenses.

4. Avoid Incurring Debts

Another alternative source of income for businesses apart from personal savings/assets is obviously incurring debts like loans. And except you are lucky enough to get a grant, you might end up spending the next few months or years repaying the debt incurred.
An emergency fund would of course reduce the need for any sort of external funds.

5. No Need to Cut Off Valuable Assets

In cases of financial crisis, most businesses, "shed weight" to remain afloat. This weight might be employees, equipment or even a part of the business itself.
During and after the pandemic some small and medium businesses began laying off valuable staff as they could no longer afford to pay for their services. 
An emergency fund would enable a business owner weather the storm on rainy days without having to shed valuable assets as weight to remain afloat.

To Conclude,

If you've been "chopping" (spending) all your business proceeds as soon as e show face, you are exposing your business to very avoidable financial risks.
Start an emergency fund even if you own a business or not, savings have been most often than not the life jacket that saves people in financial distress.
You don't need to start with an exorbitant amount, you can start small and consistently add a defined amount till you reach your target savings.
Have a blessed day :)
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