Grow an Emergency Fund
Reason #19 for Implementing Profit First in 2024 - Grow an Emergency Fund
Growing An Emergency Fund with Profit First
As a small business owner, surprises are inevitable—whether it's an unexpected illness, staff changes, equipment repair, a slow sales week, or even a larger-scale challenge like losing a key client. These moments, while stressful, don’t have to derail your business. An emergency fund is your safety net, giving you the confidence to handle the unexpected with minimal disruption. With the Profit First method, building and maintaining an emergency fund becomes a structured and achievable goal.
Why Every Business Needs an Emergency Fund
Emergencies can range from small inconveniences to significant disruptions:
- Small Emergencies: Unexpected software upgrades, minor repairs, or short-term cash flow gaps.
- Medium Emergencies: Temporary revenue dips, client payment delays, or increased operating costs.
- Large Emergencies: Economic downturns, natural disasters, or prolonged revenue loss due to unforeseen circumstances.
Without a rainy-day fund, these situations can force you to dip into personal savings, take on debt, or make tough decisions like cutting back on staff or services.
How Profit First Helps You Build an Emergency Fund
The Profit First method focuses on prioritizing financial health by creating intentional habits with your cash flow. One thing to remember: a Emergency Fund doesn’t have to be “fully funded” – you may have heard that an emergency fund should be 3-6 months of expenses. That sounds daunting, especially if your cash flow cycles barely make the month. Start small: your emergency fund can be just for 1 day. One day of income loss from illness or unexpected event. It grows to be 1 week…then a month, and beyond. Let us help you start small! The safety net of knowing you have a fund can make all the difference!
Here's how it can help you grow and sustain an emergency fund:
Profit First - Funds with Purpose
The Profit First method creates a habit and separation of revenue into separate bank accounts for Profit, Taxes, Owner’s Pay, and Operating Expenses. If in doubt, open an account! By adding an “Emergency Fund” account, you can consistently set aside a percentage of income for unexpected needs.
Dedicate 1-5% of your revenue to this account. Even small, consistent contributions add up over time and provide a safety cushion when you need it.
Plan for Scenarios
Profit First encourages business owners to review their financials quarterly, allowing you to assess risks and adjust your allocations based on income trends or upcoming expenses. Our clients enjoy Quarterly Reviews with our Certified Profit First Professional. It is a time to track success, map trends and plan for the next 90 days with certainty.
If your business experiences shifts in cash flow seasonally, we can also plan to save for the off-season, or slower times. This can be accomplished by setting aside revenue to be distributed later, or increasing the percentage allocated to the emergency fund.
The Benefits of a “Rainy-Day” Emegency Fund
Peace of Mind: Knowing you’re financially prepared for the unexpected reduces stress and anxiety.
Business Continuity: An emergency fund helps you weather short-term disruptions without affecting day-to-day operations.
Avoid Debt: With reserves in place, you’re less likely to rely on credit cards or loans during tough times.
Flexibility: You can address emergencies quickly, whether they’re small issues like a broken printer or larger concerns like a sudden revenue drop.
Beyond Your Books: Supporting Your Financial Goals
Building an emergency fund isn’t just about preparing for the worst—it’s about creating peace of mind and flexibility so you can focus on growth. Start small, stay consistent, and let Profit First guide you to a stronger financial future.