How to Create a Rainy Day Fund for Your Small Business

As a small business owner, one of the best pieces of advice you’ll ever get is to never get too comfortable when things are running smooth.

In the same way traffic accidents occur unexpectedly and natural disasters occur without notice, your business can also suffer painful emergencies. When it does, you need to be in a position to protect your business and keep it running.

Having a healthy “rainy day fund” can help you get through those unexpected bumps in the road.  Here’s how to get started

Start saving today

Whenever you’re in a position to stash away extra money, you should do it. Even small contributions, made on a regular basis will add up over time.  Create a solid savings plan that will act as a reliable backup in times of emergencies. The best way to do this is to set up a savings account and keep it separate from your other business and personal accounts.

Cut costs

Avoid unnecessary and extravagant cash outlays, even when your business is solidly in the black. There’s nothing wrong with rewarding yourself and your employees once in a while, just do not make a habit of it. For your rainy day fund to grow, you will have to avoid any needless spending. Remain disciplined and focused on growing the account and you’ll be glad you did when the need arises.

Consider supplementing your income

Any wise entrepreneur knows that it’s important to diversify their investments. Don’t be afraid to try out other business ideas that you believe can bear fruit. It does not always have to be your own business; you can invest in other successful companies to grow your money. You might also look for ancillary services that complement your main business.

Make the most of the up times

It’s normal for any business to experience highs and lows. Some months you’ll generate more income, and in others, you may have a very profit margin. During the slow times, it might be impossible to make any contributions to your rainy day fund. So it’s a good idea to make larger deposits when your cash flow situation improves.

Save your tax refund

Finally, you may be lucky enough to receive a tax refund from time to time. The best way to use that money is to channel it directly to your rainy day fund.

Consider alternative funding methods

Before raiding your rainy day fund, ask yourself whether the need for extra cash is a temporary or long-term one.  If cash flow issues are an ongoing problem, a revolving line of credit or business factoring may be a better solution.

Give us a call at 1-800-297-6652 or visit us online at www.americanreceivable.com to learn more about our accounts receivable factoring solutions and whether they’re a good fit for your cash flow needs.