When I started working with my client Brooke, she was spending most of her money, she didn’t have a clear handle on her business finances. She was charging some things on her business credit card, pulling money from our account for other expenses, and paying her family whatever was leftover. Not knowing exactly how much money was going in and out of business meant she wasn’t able to pay herself a predictable salary or invest in her business without debt or worry. In my partnership, I helped her get clear on the cost of running her business from month to month and how much she could afford to pay herself monthly. Knowing these two numbers then allowed us to set a clear goal for her business emergency fund.
Similar to having an emergency fund for your personal finances you should have an emergency fund for your business. Building an emergency fund as an entrepreneur requires you to shift how you think about your business finances.
You have to get away from…
- Managing your finances month to month in your business
- Not creating a plan for financial emergencies within your business
- Thinking I can just cover an emergency with my credit card
I want you to shift your thinking to…
- I can plan for financial consistency within my business
- Making a financial plan will allow me to thrive as a business owner
- Managing my finances intentional gives me freedom and flexibility
Why do you need a business emergency fund?
A business emergency fund can serve as a reserve for the natural ebbs and flow of business income so that you’re able to cover business expenses, pay your contractors, or even pay yourself when you’re scaling or if your revenue dips unexpectedly. Your emergency fund can also help you cover unexpected expenses like needing to refund a client, professional fees, or an unexpected need to outsource tasks in your business.
How much should I have saved in my business emergency fund?
It depends. As a solopreneur, I like to have three to six months set aside to cover business expenses and salary. As you continue to build your business and plan ahead, you may find that you want to set aside more than three to six months of expenses so that you’re able to cover intentional time away from your business too.
Four Steps to Start Saving For Your Business Emergency Fund
1. Calculate your average monthly business expenses (include employees and contractors)
Look at the past six to twelve months of your business expenses and find the average amount you spend each month.
2. Identify the amount you pay yourself each month
3. Find the amount you’d need to cover three to six months of expenses
Add the average amount you spend on monthly business expenses and your salary. Now, take this amount and multiply it by the number of months you want to have set aside for an emergency. Remember the recommendation is to have at least three to six months set aside but you can always save more according to your needs.
4. Open a separate business saving account for your business emergency fund and set up an automatic transfer
To make saving effortless set up an automatic transfer to a separate account. This could be a percentage of your monthly revenue or a set dollar amount. You might start with a 5% contribution or maybe you commit to setting aside $300 a month. It will be important for you to remember that building your emergency fund takes time, it won’t just happen overnight.
If you want more business finance tips grab my Guide to Freedom and Flexibility.
I work with professional women and solopreneurs to help them create new possibilities with their money by helping them pay themselves consistently, save for taxes, and invest in themselves so they can be intentional with their finances.. If you’re ready to create more freedom and flexibility with your business finances, to apply to work with me.