Every business will have to prepare for hardships in the future, and even when it is fully prepared, it may have to change its strategies at a moment’s notice due to a change in the business environment. This is why a business needs to be always prepared for emergencies. If not, the business may not be able to take advantage of the situation and make a quick and profitable decision.
This scenario can be seen in the present business environment. Whether the business is big or small, everyone is trying to maintain profitability and are also looking to cut down costs. It is because of this reason every company should look into the formation of emergency funds for the business, which can be used in such scenarios.
Let us know more about emergency funds and how can such funds be used by a business.
What are Emergency Funds?
An emergency fund is a stockpile of resources or any other commodity which will assist the business in its growth and development during times such as an emergency or any other dire and perilous scenario. The availability of such resources at the time of need ill help in the sustenance of the business.
Contrary to the name, an emergency fund does not only relate to monetary funds. It can comprise any kind of resource which can be hoarded o kept for use in the future. This will include not only monetary funds but also other resources, raw materials, machinery, etc.
How can a Business build an Emergency Fund?
The preparation of an emergency fund can do wonders or business, and this is why it should be created by every business. Here are some of the different steps which should be followed in order to create an emergency fund for the business.
1.Perform an Analysis of the Finances of the Business
Before taking any step, the present financial condition of the company should be known to the management. This is why the financial analysis of all the financial statements should be done. This will also help the management in understanding which business activity requires more focus from the side of the management.
2.Prepare A Budget for Your Company
This is one of the most important steps that management should perform. Budgeting is the proper allocation of all the necessary resources, raw materials, and funds to the various business activities. Preparing a budget will provide a guideline to the management about how much funds should be used for particular business activity. Creating and maintaining a budget will go a long way for the business.
3.Do Not Use Up All the Profit Made
If the company makes a profit in a deal, then a part of the profit should be jut stashed away and forgotten. This will not affect the working of the business, and the management will also be in possession of funds that it can use at the time of need.
4.Understanding the Requirement of all your Expenses
During the course of business, there are many different types of expenses that occur. Some of the business expenses can directly tie in the business activities such as the buying of raw materials, whereas there can also be expenses that hare caused by the management, such as first-class travel to a location. The latter type of expenses should be avoided so that the business has access to enough funds.
5.Conduct Valuations of Your Business from Time to Time
By performing business valuations from time to time, the management will be able to understand the current value of the business. This will help in creating a benchmark that will help the management to decide how the growth pattern of the company has been in the past. This will also help to track all the business activities of the business and understand what works well for the business.
These are some of the ways through which a businessman can create a business emergency fund. The importance of an emergency fund must be clear.
If you require assistance in the creation of an emergency fund for your business, then you should take professional help in such business matters. You can look into the services provided by JAXA Chartered Accountants.
The experts at JAXA will help in the growth of your business and will provide it the best services possible. For more details about the services provided by JAXA, Contact Us. We will be happy to help.