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Building an Emergency Fund

Just as it’s important to save money for your personal finance needs, the same is true for small businesses. In a fast-paced business environment that is growing every day, anything can happen, and you don’t want to get stuck suffering the consequences of an unexpected emergency. Who would have thought five years ago that we would be facing a worldwide pandemic in the near future? And while something as unforeseeable as a pandemic is not as common, it showed us that building an emergency fund can make or break a small business.

Other more common emergency situations include:

  • Damage from natural disasters, power outages, or HVAC issues
  • Break-ins, theft, or security breaches to your systems
  • Medical emergencies
  • Legal fees associated with injuries, lawsuits, etc.

The Benefits of Building an Emergency Fund

As a business owner, it’s assumed you want your business to succeed long term and see more upturns than downfalls. But if you fail to plan ahead and look toward the future, it can become messy and more difficult to keep track of long-term goals. That is especially true if you are not regularly setting money aside for emergencies.

A business emergency fund provides you with security and financial protection by creating a cushion for the unexpected. The emergency fund should only be accessed for specifically designated emergencies so that funds are there when you really need them. You can also dedicate some of your emergency funds to potential positive outcomes, such as selling out of a highly demanded product and needing to replenish your inventory quickly.

A good rule of thumb is to set aside 10% of your yearly revenue for an emergency fund, and if you can contribute more than that, it will be even better. Not only will having that money readily available protect you from financial crises, but it will also be accruing interest while you’re not using it.

Tips for Building an Emergency Fund

The best thing you can do once you start an emergency fund is to save consistently. Creating an emergency fund all at once can be unrealistic, so building it up over time can help take the pressure off and ensure you are still saving money. If you can, set up an automatic recurring deposit into your savings account.

Additionally, if your revenue significantly increases, put a portion of that additional money into your savings account. The more money you make, the faster you can build a substantial emergency fund and be prepared in the event of a crisis.

While some emergencies are unpredictable, others can be expected and should also be a part of your savings plan. This could include seasonal ups and downs in your industry, a forecasted recession or rising interest rates, etc.

Set Up an Account with a Trusted Bank

You want to keep your emergency funds in a savings account at a reputable bank or credit union. Plus, your bankers and financial advisors can help you manage your savings plan and ensure you are making smart decisions with your money. At Republic Bank, we have several business savings and money market account options that earn competitive interest and are tailored to meet your specific business needs. To learn more, reach out to us at 800-526-9127, and find more helpful financial tips on our website.

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