How a Rainy Day Fund Can Help Your Business
A rainy day fund is not a luxury, but a necessity in today’s competitive business environment. Most people view this extra pile of money sitting idle as simply an optional advantage. Most businesses, especially small business, never accumulate a rainy day fund, either because they are struggling to just breakeven or the money is used for other purposes. These funds are often only created when there is an accidental budget surplus.
A surplus of capital is often desperately needed for many reasons. Unfortunately, you never realize it before it is already too late. Perhaps you’re hit with a large tax penalty or a massive insurance payment. A timely infusion of cash could limit the damage and stop the ugly process of accruing interest, payment plans, and collection agencies. However, it’s also a mistake to think the rainy day fund has to be for something “negative.” This cash could also be used to make the most of some great opportunities. For example, let’s say you see an incredible deal on a key piece of equipment. You’ll surely be glad you have the extra cash to quickly make the purchase.
If you have reached the point in your business where you are actually generating cash flow and successfully paying your bills, it’s time to start preparing for a rainy day fund. It doesn’t have to be huge, just make sure it is appropriately sized to handle the unexpected events your business could realistically expect. Start putting in some money when you can, or better yet, create an automatic transfer to the fund. Before long, you’ll be better prepared for the unexpected.