financialtreat – will explain about These are 10 Must-Have Emergency Fund Benefits for Business that you will get in the following article. let’s look at this article carefully!
An emergency fund can be interpreted as a fund or other liquid asset that is ready to be used when facing financial problems. This emergency fund acts like a safety net that can cover expenses that arise without prediction. Therefore, on this occasion we will discuss emergency business funding, let’s see not to miss it.
The amount of funds prepared is also relative. There is no exact amount about how much minimum funds must be prepared because each business has different needs. But, according to financial experts, the amount of emergency fund you have to prepare is at least three to six times the monthly expenses of your business. If you are one of the entrepreneurs who still haven’t prepared an emergency fund or other forms of savings funds, it’s a good idea to be aware of the following 10 benefits of emergency business funding.
These are 10 Must-Have Emergency Fund Benefits for Business
1. Build defenses in the face of the unexpecte
The world moves so fast, it’s the same as the wheels of the economy. In just a few quarters, the economy can suddenly surge but it can also plummet. When this collapse occurs, then every joint of the economy will be affecte. The unexpecte event we are facing right now is the Covid-19 pandemic affecting every aspect of life.
The disease triggere by the Sars-Cov-2 virus has been confirme to infect more than a thousand Indonesians. In order to break the chain of spread of the virus, the government also urge residents to stay at home.
On paper, staying at home can feel good because you can get together with your family, save expenses, and so on. However, when viewe macro, this reduces demand in some business sectors because many people do not do their usual activities. In fact, the activities of residents indicate a turnover of money.
As can be seen, nowadays, many businesses have begun to lay off their employees, stop the production process for a time, or even go out of business immediately. If you do not have an emergency fund, then your business can have such a fate.
2. Reduce dependence on debt
If the need is urgent and does not have liquid assets, then you will have to make a loan. If it is run for several times, it doesn’t matter, but do you have enough assets that can be use as collateral? But, if not, then you will find it difficult to again get capital for the company’s operations.
Without ready-to-use funds, you cannot produce goods and/or pay employees. If that happens, then you will no longer be able to produce goods or offer services at maximum capacity. As a result, turnover also decrease over time.
Now imagine if you had an emergency fund. Then, you will have enough capital to continue operating for the next few months, of course, by first making some adjustments. For example, by making proportional adjustments to the basic wage to all employees of the company, including yourself. These proportional cuts are important to implement to protect all employees without ifs.
3. Ensure that cash flow remains healthy
Despite the Covid-19 pandemic, cash flow itself is already a common problem in the business world. Thus, not all businesses have a healthy cash flow. This also affects performance and there may be investors who want to invest.
Most companies fail because they don’t have healthy cash flow. The funds that come out are always greater than the income, which eats away at the fixe capital owne by the company. Moreover, if the debt payment is due, while the payment from the client has not yet fallen.
If you have an emergency fund, then you can still have a bailout fund to pay debts and other payments that are already due. Thus, your business can continue to operate as it should.
4. Avoiding legal cases in the future (Emergency Fund)
This is the benefit of an emergency fund for business that can save you in the future. The absence of funds can make you fail to carry out your achievements in an agreement. As is well known, binding agreements are like laws for those who agree.
If you are late in making payments as promise due to unhealthy cash flow, it is not impossible for the second party to ask for compensation due to the delay.
This compensation request is still relatively small when compare to a civil lawsuit that could have been file by a second party. If you don’t understand, the trial of a civil case like this usually takes quite a long time and every process costs money. Therefore, the costs you have to spend in the future will be even greater. Surely you don’t want to get this to happen.
5. Help cover the cost of repairing business tools
For businesses that rely on production tools, their sustainability depends on the situation of the tool. If there is damage, the production process will be disrupte so that sales will decrease. If this is allowe to continue, then the company’s finances will be affecte. Ideally, every business must have a maintenance budget for the tools use. However, if these funds do not exist, then an emergency fund is the only solution you have.
6. Capture business opportunities that suddenly arise (Emergency Fund)
Although it is not recommende, you can also use an emergency fund to capture business opportunities that arise suddenly. Whether it’s by buying a potential business that is struggling with funds, spending on inventory that is plummeting in price, or investing in other businesses that you think the future prospects are very good.
It’s just that, before using an emergency fund for the benefit of company expansion, you must be extra careful because don’t let your business continuity be threatene because you lose your safety net.
7. Help you manage your finances better
Previously, it was state that many businesses went out of business because they were not skille in managing their cash flow. This is cause by the company’s management who are not wise in managing finances.
One of the reasons is because they are less able to group expenses that are priorities and which are not. With the existence of an emergency fund ーand agree on how important the company’s emergency fund is, it is helpe to have a more aware priority in managing finances.
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8. Protecting investments
Protecting investments here has two meanings, namely protecting your company’s investment and protecting the investment that has been investe in your business. By having an emergency fund, your business will have an “additional life” if you have to face difficult circumstances. That means you don’t have to sell, mortgage, or collateralize the assets your company already owns. Thus, the investment that your company has disburse can be protecte.
On the other hand, the investment that has been investe into your company can also be protecte because your company can still continue to operate and generate income even though it is facing financial problems. So, having an emergency fund is not only good for yourself, but those who have entruste you.
9. Maintain employee productivity (Emergency Fund)
Each employee wants a guarantee of safety, not only for themselves, but also for his work. If the company runs on a thin thread in the absence of a safety net, your employees will lose that sense of security. How can an employee achieve their best performance if they feel that they are under the shadow of layoffs due to chaotic company finances?
Therefore, having an emergency fund is an obligation to ensure that the company is in a healthy atmosphere, so that employees do not have to think about what their fate will be in the future and remain productive in carrying out their work.
10. Minimize the amount of loss
For those of you who are just pursuing a business, this emergency fund can be include in the initial capital of formation. Every newly establishe business certainly takes time to be able to achieve a return on investment, whether it is in a matter of months or in a matter of years.
With an emergency fund, you will still have enough capital to be able to run a business for some time to come. It’s just that, make sure this emergency fund can be use at any time. That means don’t save this emergency fund into a less liquid investment.
Those are the 10 benefits of emergency business funding. If you are just about to start a business, then there is nothing wrong with calculating an emergency fund into business capital. If it turns out that the funds you have are not sufficient, there is no need to worry because you can take advantage of Moka Capital’s services to get additional capital and thank you.