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The Business Emergency Fund


Business Emergency Fund

Having a business emergency fund is absolutely paramount for a business to weather some of the hardships it will inevitably face. When you create a work environment that people actually love to work in and you take good care of your people, you’re going to need backup funds to keep that alive in times of struggle. Remember, we are not just trying to get by in business. We are trying to thrive!

An emergency fund should be able to cover minimum operational expenses for 3 to 6 months. It’s preferred to be at that 6 month mark, but 3 months will leave you sitting pretty for your decision making process. This is a subject that rarely gets talked about, but let’s talk about the power of an emergency fund.

You should be putting aside something from everything you make. This could be as little as $50 a week or less. The key is to start saving and make that money not exist in your head. When that fund gets up to $1,000, you’ll notice your thought process changes on reinvesting in your business. That thought process will change even more at the $10,000 mark. You feel even more bulletproof at the 100k mark, that’s the mark I had reached last year.

The hope is that you’ll never need that money and it just sits there gaining interest and creating decisional confidence in your reinvestment choices. When you have $10,000 or more in the bank, buying that new tool that will make you more money isn’t quite as hard as it used to be. This is what we call financial literacy. It’s the ability to control and manipulate the money coming in no matter how great or small the amount. It starts with putting aside a few bucks a week….but why?

I had an emergency fund of over $133,000 for our business last year. We are expanding into a second shop and I brought on management payroll as a reinvestment. This way the lead team is ready to rock as soon as the new shop doors open. This emergency fund gave me nothing but confidence in my decision making for this next store….but disaster hit and we had to use it.

The last 6 months of last year were quite challenging. In 6 months I lost my grandmother, my dog Evelyn who was my homeless buddy years ago, my mother (completely unexpected and 6 days after that I found our 9 year old lab dead under the bed. That’s just what I went through. Our manager’s wife lost her Grandfather who raised her. We had terrible flu-like sickness running through the crew in December when mom passed. I left for 3 weeks to take care of my family and check on my dad. We drove out to NY, but that’s a story for another day.

I can promise you that I would have been laying people off and closing the business for 3 weeks without that emergency fund. All of that stuff couldn’t have hit at a more inopportune time, but we made it through just fine. The emergency fund is a powerful tool for both decision making and for actual emergency needs. I want to leave you with 1 question.

Could your business survive the worst financial crisis that you can imagine in your head?

Jonathan Monson
Auburn, WA
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4 comments on The Business Emergency Fund

  1. Mike @ DI says:

    Great article, Jonathan! You never know when you’ll need those emergency funds. Sorry for your losses too.

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