Importance of Emergency Funds – Freedom & Liquid Assets
Tags – Importance of Emergency Funds
We have had this topic in the bank for a while: importance of emergency fund for any business. And, now that businesses are crashing at an unprecedented rate, the conditions speak for themselves.
Currently, even though policies are being created at an unprecedented rate and help is along the way, businesses that had an emergency fund are the ones surviving while the rest are still struggling to cope.
And, the help is only available to British businesses so far. The rest of the world is still trying to adjust and there is already news of established businesses struggling, including Airbnb and Uber.
How Much Should You Have?
At the most basic level, you should have 3 to 6 months worth of your monthly expenses on hand.
This may have sounded like a big number, but now that coronavirus is hitting businesses, we are seeing the true effects.
On the other hand, businesses that keep a surplus are actually in a position to go a step further to help their employees. A good example here is Google, which has even created a fund to support its staff in the current struggling times.
All in all, explicitly, here are the benefits of an emergency fund.
1. Freedom to Make Difficult Decisions
Even in times not as adverse as currently, having an emergency fund allows businesses to make decisions that would have been deemed difficult even in usual times.
For instance, if there are funds in the bank, you are more likely to take greater chances with your business and invest in greater opportunities. In fact, once again giving the example of Google, the company is able to acquire a new business almost each week on average and grow continually. Such is the situation that, most of these investments may not even come off, but the ones that do pay great dividends. In fact, companies like Google have whole departments dedicated to keep an eye on investment opportunities, similar to an out and out investment business.
This ability to take chances is possibly one of the most important reasons in the growth of Google itself.
2. The Ability to Dip in
According to some estimates, a staggering 45% of freelancers don’t get paid on time.
The numbers for SMEs are not much different either.
Under such circumstances, having the emergency funds allows businesses to keep going while the invoices are cleared.
In all fairness, you are now able to acquire insurance for such situations. However, even these processes take time and while you are waiting, you need your emergency funds to stay afloat.
The bottom line is: emergency funds are liquid and hence, can solve quite a few of your problems.
To learn more, get in touch with us today.
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