You may have heard that you need to have an emergency fund in your personal finances in case of an emergency. Well, emergencies happen in business too so why not have a separate emergency fund in business? The main question I get often from clients is how much should I have saved in an emergency fund. Well, to be honest it depends. I know that’s not what you want to hear, but there are so many factors that can determine what that amount should be which is why I help my clients determine that amount. In the meantime, here are some things to think about to help you determine YOUR amount to be saved in case of emergencies in your business:

1. I would have a minimum of $1,000 to start. While this may not be much, it’s at least something until you build it to where you want/need it to be.

2. How much do you need to pay for all of your business expenses including payroll, taxes and you as the owner? If you knowhow much per month, take that amount and multiple it for the number of months you feel it would take you to pivot in your business if something were to happen. If you have a quick turnaround to bring back up your revenue, then maybe you only want one month. Or maybe you’re in an industry that was affected in 2020 and a nice 12 months would have been wonderful for you.

3. Think about what makes you feel comfortable knowing that if something were to happen, you know that business can still operate for those number of months that you have saved for. If only having 3months of expenses gives you anxiety, then shoot for 4 or even 6 months.

4. Look historically at your business to see if you’ve ever had to apply for a business loan to help you make ends meet. How much did you need then? Hopefully your business has grown since then so you’ll probably need a bit more, but if you had a $50k loan and that was just the right amount you needed, use that number as a baseline to start saving and then evaluate to see if you feel you need more.

5. How much of your business expenses could you cutback on if needed? While this is an exercise to do when an emergency occurs, why wait? You could analyze your expenses NOW and save more money to put towards your emergency fund.

There is quite a bit more factors that can go into this, but that gets more into details based on industry and personal lifestyles. And one more thing, feel free to ask me! Let’s have a conversation to determine what YOU need saved to help you feel at ease in your business so that you can continue doing what you love and not worry about the money (or running your business check to check for that matter). I’d love to have a complimentary discovery session with you and see how I can help.