Many companies find themselves unable to weather challenging times due to the lack of an emergency, or rainy day, fund. This is particularly true for small businesses that do not have access to the same resources as larger companies. Generally, three to six months’ worth of living expenses is adequate to put aside, but your business’ risk does play a role. For instance, if your business is sensitive to the economy, you may wish to save even more money. If you are creating a new fund, designating a set amount in your budget every month is the easiest way to save. Avoid the temptation to use the funds for a nonemergency, with the idea of replenishing the amount later. Try to put the money in a safe place, such as a savings account, and use a separate account so you do not get tempted to dip into the money. Once you set up the reserve, and are comfortable with the amount, you can separate it from your regular cash in your balance sheet. While no one wants to have to use the cash in a rainy day fund, it’s nice to have it when the bad times set in. This way, you live to fight another day.
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.