3 Reasons Your Small Business Needs an Emergency Fund
Most people know that it’s wise to have an emergency fund for their personal lives, but did you know that you should also have an emergency fund set up for your business? Small businesses need to rely on having money on hand to resolve issues rather than relying on credit cards or loans.
There are a variety of scenarios that could come up which call for having cash on hand. Take a look at some of the most likely reasons your small business could need cash fast.
The first and most obvious reason your business could need funds is for an emergency. Perhaps you have a power outage and require renting a generator. It’s also possible that a major piece of equipment your business relies on for operation needs to be replaced. You never know what kind of emergencies could come up that call for liquid funds immediately.
Any sort of emergency that could bring your business to a slow down is a critical issue. In the world of business, time lost is money lost. In order to keep yourself in business, you have to act fast when things need to get back up and running.
Cash Flow Problems
Businesses rely on a cash flow system in order to meet the demands of their operations. Running a business doesn’t just bring in money, but it also has to pump it out. You need to pay bills every month for things like materials and labor.
Some months you may need to make payments before you’ve gotten enough from business. An emergency fund helps cover these costs until you have enough to make ends meet. Even though relying on loans can solve cash flow problems, loans come with interest attached. However, having your own funds on hand to cover unexpected costs doesn’t require any time restraint to pay it back with interest.
Expansion and Opportunities
As a small business, it’s important that you seize the moment any time that you see the opportunity for growth. Having money on hand for business opportunities means having more freedom to capitalize on opportunities.
Money allows your business to take risks and jump on strategic ideas. Some examples could be buying out one of your competitors. If you have the funds on hand, it could be an incredible opportunity for growth for your small business.
You could also purchase brand new inventory or materials that are on sale that could significantly speed up your production. The advantage of buying it with cash means not having to worry about paying back a loan within a strict timeline.
The bottom line is that having cash on hand is important as a business owner. Whether you’re faced with an emergency, or a business opportunity, money means flexibility and the ability to move ahead with your ideas.