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Monday, 03 August 2015 11:29

Getting Smart With A Business Emergency Fund

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emergency fund

 

Imagine it’s a dark, stormy, cold night when all of the sudden, the boiler goes out at your business. What’s your plan? Maybe you don’t even have one. This could be dangerous, costly, and not to mention terrifying. You definitely don’t want to take a gamble like this but what can you do to prevent it?

 

First, get an emergency fund for your business. Some of  you likely already have a personal emergency fund set aside for unexpected costs, but does your business have that same “Rainy Day fund”?. Financial expert Dave Ramsey suggests that a company sets aside about 6 months of expenses aside for your business. You may be able to control your operations, but external obstacles can present themselves at any time, leaving you to scramble for a solution. Failure to prepare could lead to debt. And when the business has too much debt, you might be forced to close. And if you have to close your business, you might have to go live in your mother’s basement, and nobody wants that :). Careful financial planning will ensure that you are protected from life’s uncertainty.

 

What keeps some small companies from having an emergency fund is thinking that they can’t afford it, but the truth is that you can’t afford not to have one. Putting money back into your business is a routine occurrence to keep operations running smoothly so this really is no different. The most important decisions your company makes are the ones that lower risk, having an emergency fund falls in that category. Everything you have is on the line and many of you probably already have a strategy of dealing with this. When handling  risk you have 3 options:  be proactive, be reactive, or completely ignore the problem. Having no plan is obviously the worst option.  It is like being an ostrich with it’s head buried in the sand, it changes the ostrich’s view, but doesn’t change the lion's dinner plans. Having an emergency fund is reactive because the funds will be used to take care of a problem after the fact. But, what does it mean to be proactive? To make sure the boiler doesn’t go out?

 

 This brings up a very interesting philosophical question:  If you plan for an Emergency, is it really Emergent? When Ramsey recommends an Emergency Fund for your personal life, he says Emergencies are unexpected expenses. He often reminds listeners that a car accident is Emergent, not forgetting to buy Thelma a Christmas. In the context of a business, what are emergencies? Just like your home is going to need repairs, your business will need repairs too. You have the choice on whether you want to be proactive or reactive. Machines will break, technology will need to be updated and your facility will need improvements and upkeep--all of these should be planned for. The cost of replacing a boiler may not be known, but you can have a good idea of what it will cost. As part of your “Emergency Preparedness Plan” it would be a good idea to do a “systems” check of your facilities equipment. When was the last time you had the major energy users evaluated for your business? Many times, equipment like air condition, boilers and lighting use more energy before they break down. The Building Performance Team can do a Re-Commission evaluation of your building (basically its a physical for your facility) and tell you what systems are in danger of leaving you as a hot, sweaty mess. Contact us to schedule your free Re-Commissioning initial walk-through.

Read 1048 times Last modified on Friday, 28 August 2015 13:03

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