Even if trading is very successful for your business, you can never be too sure of what dangers lie ahead. If your sales begin to dry up, running costs skyrocket or an unexpected expense messes up your balance sheets, it pays to have a little insurance. To weather a coming financial storm, consider setting up a ‘rainy day’ fund.
It could be built up by saving a few dollars or pounds here and there or by setting up a high-interest savings account and depositing a set amount into it each month. Many of the most successful businesses in the world have rainy day funds, whilst many US states and countries have their own to fall back on during hard times.
Last September, the value of Norway’s sovereign wealth fund topped $1 trillion. This was made possible by investing money sensibly in currencies and doing so in good times. While you don’t have to go down this route or aim for a trillion, a few thousand could make the difference between staying afloat and falling into bankruptcy.
Growing Apart from a Family Business
Emergency funds can help if you run a family business and there are a few disagreements that threaten to tear the company apart. In the case of a dispute over who owns what, a rainy day fund can cover the cost of reimbursing whoever leaves the family business and wants their share of the company.
When there is a divorce and both partners are involved in a shared business, the process of dividing up a couple’s combined assets is a big and potentially expensive task. With the help of divorce lawyers and a rainy day fund, determining who is entitled to what will become far easier to arrange. The extra money can help pay off whoever is leaving.
Another way in which rainy day funds can be useful is if your business experiences financial turbulence. If, for example, a major client leaves and creates a hole in the finances, rainy day funds can help to bridge the gap. It can stave off the threat of going into liquidation, whilst it can also help to meet everyday running costs.
Staff in particular, who may be worried about the loss of a client or a fall in sales, could feel reassured. In knowing that the money is still there to pay their salaries, they can continue working without fear of not being able to pay the bills. They won’t be the only ones who will feel comforted by knowing about a rainy day fund.
Staying in Business
Businesses who have extremely loyal customers may be worried if their favourite brand is in financial turmoil. They may look to take their money elsewhere, just in case that they want a refund for their purchase to be guaranteed. Rainy day funds can provide back-up which will not affect customers’ confidence too much.
Finally, these funds can also help to make companies better at managing their money. While it is possible to bounce back from the brink of bankruptcy like General Motors did back in 2009, making cost savings and spending money wisely can improve balance sheets and make setting up emergency funds far easier.