It’s a good idea for all businesses to have access to emergency funds just in case they need them. All kinds of things can happen that, if there were no extra money available, could be devastating to the business and the people working in it. No matter how long you have been in business, having that emergency fund is always going to be important. Here are just some of the reasons why you might need the money, and why you should keep it safe just in case.
Your Debt Is Called In
The majority of businesses will have some kind of debt; it’s perfectly normal, and something that many people find is absolutely necessary when they start their own company. This debt could be in the form of a loan, a credit card, or an overdraft on your bank account. Whatever it is, there is usually a fixed term associated with it. However, sometimes these loans are called in early. You can check the small print of the agreement you will have signed to see if this could happen to you.
Having to pay back a loan at relatively short notice can be a problem which is why having access to the funds when you need them can help you out. You might have the money in savings, or you could look at another fast loan to help you out, for example; click for more information.
Your Profits Are Low
You might have been making a good amount of profit, and then something happens that means your profits are now no longer as good as they once were. It could be that the market in whatever your sector is in crashes, or perhaps a supplier or big client goes out of business or chooses to work with someone else. Suddenly, the money you were making begins to dry up, and this can be a disaster for a small business.
It’s not as bad if you have emergency funding available, however. You can use that money to stop the gap between your lack of funds and your new campaign and marketing strategy, whatever that may be. There is no need for your business to close if you can find the money to see you through the hard times and if you have a second plan ready to go to find new customers or make more money.
Too Much Stock
Over-investing in stock is another reason why you might find your business low on funds and therefore need an emergency top up from a borrowing source. It can seem like a good idea to buy a lot of stock if it is on special offer or if you anticipate selling a lot and it might be limited. However, this idea doesn’t always pay off, and that can mean you are left with excess stock that no one wants. You can’t get your money back because no one wants to buy it, and you can’t buy new stock that people do want because you have no cash available.
If you have an emergency fund open to you, you can buy the new stock and begin to sell it while working out what to do with the old stock. Simply to make sure it is gone, you may have to sell it at a loss, but if you have new stock that you can sell at a profit, it’s not so much of a problem.
If you are working on a business to business format, you will most likely offer your customers and clients some form of credit, which is usually 30 days. However, not everyone is going to pay within that time, and that can have a serious knock-on effect on your bank account. Slow paying customers who are at the limits of the credit you have extended them could make or break your business if they pay or don’t pay; it can be that close to call.
If you have savings or access to emergency money, you can use it while you’re waiting for them to pay. When they do pay, you can then put their money straight back into your emergency account, or pay off the loan or credit card you used to plug the gap until they paid. It may be frustrating, but businesses that are offered credit probably will take some time to pay, so as a business owner you must be prepared to take this into account when you are budgeting.
Sometimes they won’t pay at all, and this will have a big impact on your business, especially if they owe a lot of money. Although this can’t always be predicted, it is wise not to extend credit to a company that has a poor record. You can check this out through various methods online to find out what their credit score is, for example. They will need to pay upfront, at least the first time they use your services.
Depending on what business you are in, you may find there is a specific seasonal demand for your product or service. When sales are down, you may need to rely on your emergency funding until they pick up again. Knowing that your business is going to run in cycles is important because you can plan for it. Outdoor sports, anything to do with yard work, perhaps car detailing, and plenty more will all be more popular during the summer, and the work will become more scarce during the winter. Likewise, if you run a Christmas based business, or perhaps something to do with Easter, you will have busier periods and then quiet ones. Prepare for these in advance so that you don’t run out of money before sales pick up again.
Although you should have a good idea of how much your tax bill will be, and although you should certainly know when it’s going to come, sometimes the amount (and timing) can be something of a surprise. Having extra money available to pay the bill can save a lot of worry and stress, and it means that your business can keep trading without any problems. A tax bill will always have to be paid, so it’s wise to keep money aside for it.