How to Start an Emergency Fund and Save Your Business

Shalom Solomon

In the previous post, we discussed at length the importance of having money stashed away for emergencies for small businesses, all businesses really; emergency funds.
Now, while we understand that having an emergency fund is vital for all kinds of businesses, some business owners are reluctant to start one. Probably because they believe that their business cannot afford to keep money idle in an account for emergencies that may or may not come.

Photo Credit: Dreamstime

But, we've seen in 2020 that emergencies do come and some might be heavy like the last year's global recession. And it's always better to be prepared for any inconsistencies. Like the popular qoute says
"Failing to prepare is preparing to fail"
And since I have your best interest at heart, I'll give you simple steps on how to start an emergency fund for your business.

How To Start Your Business' Emergency Fund

We'll now go on to learn the proper procedure to start an emergency fund for your business in four easy steps.
Step 1: Determine the size and target amount of your emergency fund
Step 2: Draft a saving schedule
Step 3: Set up a savings account
Step 4: Start saving

Step 1: Determine the size and target amount of your emergency fund

The size of your emergency fund is dependent on a number of factors such as:
  • Operational cost: How much it costs to run the day-to-day activities of your business.
  • Type of business: the structure, model of your business. Is your business a business a sole proprietorship? Do you have employees? How many employees do you have?
  • Payroll: If you do have employees, how much do you pay your staff? Do you place yourself on a Payroll?
  • Monthly Revenue: How much your business generates as revenue on a monthly basis.
  • Estimated high: Every business has different levels of issues they might encounter. So you should try to estimate the cost of the most extreme crisis and draft your target amount.
These factors should be critically looked into before you decide the target amount and size of your emergency fund. Business experts agree that you need to have enough money stashed away to cover the operational costs of your business for a minimum of 6 months and at most 24 months.

Step 2: Outline a Saving Schedule

After determining how much should be in your emergency fund account, the next step is to outline a clear schedule. Your schedule would determine how often you send money to the account and at what time you do so. You can set up your saving schedule to be daily, weekly, twice a month, monthly, quarterly or annually. This should be dependent on the flow of money into your business and the type of business you run.

Step 3: Set Up a Savings Account

Of course, you would want to stash the money saved in a safe location. The best place to stash away money is a savings account in an approved bank. Research properly, find a suitable bank with a great interest rate and set up a savings account.
Brick and mortar banks usually have low interest rate and high bank charges. For this reason, digital banks like former Diamond bank's CEO's Sparkle, are taking over the savings market. Digital banks do not have a physical location and as such have very little cost of maintenance. Hence, unlike brick and mortar banks, they have little or no bank charges and high interest rates.
You can even automate your savings.

Step 4: Start Saving

With your account set up in a bank you are comfortable with, all that is left is for you to begin saving. Follow your savings schedule strictly. Also, try to keep track of your progress, it would encourage you to keep on saving.

To Conclude

Well, that's basically it, you've successfully set up an emergency fund savings account for your business and  you can begin saving. Please, note that there is no pressure, you can start small and build from there till you achieve the target amount.
God speed...

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