Rainy days can come unannounced. If you are a small business owner, a
sudden financial crisis can put a dent in all your plans. A global
economic recession looks inevitable amidst the coronavirus outbreak.
That's why building an emergency corpus is exceptionally critical. It
can help you weather through the rough days with ease. So even when
your business is unable to operate at its full potential, you can
continue to power through by dipping into your emergency corpus.
We have put together a handy guide on how can you create this corpus
with ease:
Build emergency fund into your business plan
An emergency comes in all shapes and sizes. It could be a medical
emergency, a natural disaster, or even the loss of your business
partners. The right approach to building an emergency fund is by
identifying the potential emergencies that pose a risk for your
business. Provide for the emergency fund in your business plan so that
you are forced to stick to your objectives.
Maintain distinct accounts
Many business owners make a rookie
mistake of just having one business bank account. This does not allow
you to focus on building a standalone corpus as all the debits are
carried out through a single account. Start by setting up a separate
account, earmarked for emergency funds. A different account will also
help to prevent any urge to spend the funds elsewhere.
Invest in the right financial products
Investing your hard-earned money to gain
higher returns simply is very short-sighted. Without proper due
diligence, you may end up with the wrong portfolio of assets.
Investing in Direct
mutual funds can be a great avenue as they offer superior
returns compared to regular mutual fund plans. There are no
intermediaries involved in direct plans. So you don’t have to give the
commissions or brokerage fee out of your pockets, leaving you with
higher returns. As mutual funds are a great way to diversify your
investments across assets, it can be a great addition to your
emergency kitty. Keep in mind the tenure and exit loads applicable on redemptions.
Reduce unnecessary business expenses
In the era of consumerism, it is very
easy to fall prey to unnecessary expenditures. However, if you are
planning to build a substantial emergency corpus, resist the
temptation to spend without any cause. Have a monthly spending plan
that accounts for your necessary expenditures and make it a point to
stick to that. Avoid unnecessary travels for business meetings if you
have an option to do the same over a call or video conference. If you
outsource a lot of services of your business, reevaluate if it is
possible to cut back on certain costs. Any money that you save can be
a valuable addition to your emergency corpus and strengthen it further.
Speak to your financial advisor
Navigating the world of investments is
not a cakewalk. It is very easy to get overwhelmed due to the variety
of products available. Therefore, seek the help of professionals
whenever you are in doubt. Discuss your options with your investment
advisor. Financial planners can also help you to decide on your corpus
and the right products for your portfolio. You can also approach an
investment advisory platform such as MoneyFront that
provides financial advisory services to clients via a comprehensive
portfolio approach using a fully automated and paperless platform.
Use your tax refunds
If you are worried about setting aside a
portion of your income for your emergency fund, tax refunds can come
to your rescue. Instead of using tax refunds for operating expenses of
your business, put it away in your emergency fund accounts or invest
it in stocks or mutual funds.
Conclusion
Very few small business owners pay
attention to building an emergency fund. Given the unpredictable
financial climate, there is no time like the present to start building
your emergency fund. Always remember that emergencies come
unannounced. It is also impossible to predict the behaviour of the
market. That’s why the sooner you start, the better it is.
It would be prudent to save an amount
that can help you survive for at least three to six months. If you
are struggling with being financially disciplined to save, set up
auto-withdrawal instructions so that you are forced to save. However,
resist the temptation to use your emergency funds for events that are
not true emergencies. If you want to be a responsible entrepreneur and
watch your business succeed, get started with an emergency fund right now.
