How can you build an Emergency Fund for your Business?
27

Nov 2020

Emergencies can arise out of any situation and if the emergency is not handled properly then the responsible party will have to face a number of consequences. A business should also maintain some funds which can be used during any emergency situation. In most cases, if the business is unable to maintain itself during an emergency then the business will have to be liquidated.

We are seeing many such cases in the present scenario. Many businesses around us, no matter the size, are facing danger to close down as they are unable to maintain an equilibrium point. This means that the businesses are having money problems and are unable to maintain the business expenses.

This situation can be avoided by many of the companies if the companies maintained a buffer fund which consisted of enough resources to continue the business until the adverse situation blows out. If your business still does not have an emergency fund, this is the time you should create one for future emergencies.

What is an Emergency Fund?

The emergency fund is a stockpile of resources that will help you or your business survive during emergency situations. These situations include anything from social unrest to a global pandemic. This fund can comprise monetary resources or resources in general.

The concept behind the creation of an Emergency fund is that even when the business is not conducting the business activities or there is a stop on all the production-related activities for some time, the business will still be able to stay afloat without taking additional debts or loans.

How can you create an Emergency Fund?

There are a number of steps to create an emergency fund for your business. Some of the steps are mentioned below:

1.Make a Budget for the Company

Creating a budget for the company is very important as it will provide a guideline relating to the amount available for spending. The creation of a budget will help in understanding how much funds can be spent on particular business activity. The budget will also help the management to reduce their pending and also set a limit to the expenses.

Budgeting also allows proper allocation of the sources to specific departments and also helps you plan for the future of the business.

2.Keep a part of the Profit in the Banks

One of the main jobs of a company is to make profits. A part of these profits should be distributed among the investors and shareholders and a part should be kept in the bank as a buffer. This can be done for a period of time which will mean that the business has a sizable chunk of profit which can be used during emergency situations.

The businesses usually keep Ten Percent (10%) to Fifteen Percent (15%) of the profit in the banks for future use. As there is liquid cash which can be availed at any time, the business has peace of mind and can make good decisions during times of economic uncertainty.

3.Analyze the Business Revenue

Analyzing business numbers can tell us a lot about the present condition of the business and how to alleviate it. Business analysis will help in forecasting the future of the business and will help chart a trend among the people which will help decide the future of the business.

The analysis of the busies numbers will also be a huge factor in deciding what should be the size of the emergency fund and how much should the business put into the bank.

4.Re-evaluate all your Business Expenses

The management should analyze the business expenses every few weeks. This should be done because the expenses of a business also depend on the seasons and the tastes and preferences of the clients. The re-evaluation of the business expenses after every few weeks will help in making changes in the budget according to the present requirements.

5.Plan for Emergency Situations

We can now see that emergencies can arise at any time. It is the duty of the management to be prepared for any scenario which arises in the business environment. The management should not hesitate to leverage some of its assets during such times.

The emergency fund will help the business to stay afloat and will also allow the business to continue its work.

If you too want to create an emergency fund for your business in the UAE, then you can contact JAXA Chartered Accountants. They also provide various other services which can be a great help to a business. To know more Contact Us. We will provide all the necessary details.