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We’ve all heard the expression “saving for a rainy day.” For small business owners, creating an emergency fund may not only be practical, but critical. A “rainy day” fund is the best insurance your small business has for continuing operations in the face of unexpected financial issues or helping you recover from an unplanned, costly event.

In a small business where every penny counts, setting cash aside “just in case” is easier said than done. You will need to save more, spend less, or both. One way to ensure that you’ll be in a position to control your circumstances is to shift your mindset to include savings as part of your annual business budget.

Here are some ideas to help you start building your emergency fund now and continue accumulating funds over the long term:

Cut Costs Wherever Possible

One of the most obvious strategies for starting an emergency fund is to reduce expenses and stash the savings. To accomplish this, you will need to take stock of your business expenses on a regular basis in order to pinpoint unnecessary expenditures and know where you can cut costs. Invite your team to make growing the emergency fund a top priority. This may inspire them to find creative ways to be more economical, knowing that every dollar saved is going towards helping secure the company’s future.

Avoid Needless Spending

Whether it’s a hot deal on a new product line or the lure of the latest tech gadget, it’s not easy to resist the urge to invest money in your growing business. However, as a small business owner, controlling expenses is critical to your company’s survival. Investing in the future of your business means budgeting wisely and avoiding spending money needlessly. Seemingly small expenditures add up over time, so focus on sticking to your monthly business budget and using any extra income to build a cushion for when unexpected expenses arise.

Cut Back on Outsourcing

While outsourcing important tasks such as marketing and bookkeeping saves you precious time, it can also have a big impact on your bottom line. Revaluate your outsourcing expenses with an eye for where you might be able to cut back. If you are able to realize savings by tightening fees for consultants or contract workers, you can allocate the money to your emergency fund.

Make the Most of More Profitable Months

Is your business seasonal? While you should strive to put money aside all year long, seize the opportunity to stash additional cash in your rainy day fund during the months when you generate higher profits. This will make up for periods when revenue is on the lean side.

Put Your Tax Refund to Good Use

If your business is entitled to a tax refund, use it to make an installment in your emergency fund. It may be tempting to apply this “found money” towards immediate expenses, but you’ll be putting it to the best use possible: the preservation of your business.

Once you have created your safety net, it’s important to manage it properly to ensure the funds are available when needed. Here are a few tips:

Keep Separate Accounts

Separate emergency funds from your other business bank accounts. This will allow you to keep tabs on exactly how much you’ve got saved and resist the urge to spend the money elsewhere. Out of sight, out of mind!

Make More Money with Your Money

Investing all or some of your savings can further increase your rainy day fund. Keep in mind that while investment options such as the stock market can pay off over time, you want to ensure the money is readily available in case of an emergency. Small business owners should consider safe savings and investment options that can be cashed out with little notice. FDIC-insured savings accounts, money markets, and short-term CDs (Certificates of Deposit) are generally regarded as good choices. Look for instant access savings accounts offering the highest levels of interest or CDs with the highest yield over the short-term.

Define What Constitutes an “Emergency”

Don’t be tempted to tap into the emergency fund to cover expenses that, quite simply, are not emergencies. One way to avoid this is to define situations that you and your team consider to be critical business emergencies. Commit to using the fund only when these circumstances arise.

In the event of a financial challenge that exceeds available funds, you can contact the U.S. Small Business Administration about taking out a disaster loan. You can also consider applying for working capital financing. Summit Financial Resources offers working capital loans that involve using your accounts receivable and other assets as collateral. We specialize in financing for small businesses, with lending programs designed to give you flexibility and fast access to cash so you can cover operating expenses and pay your employees and suppliers during any emergency.

Starting and maintaining an emergency fund for your small business will help ease the stress of daily operations and give you the peace of mind of knowing you can weather the storm when that proverbial “rainy day” arrives.

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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.