Latino entrepreneurship might be on the rise and is already an integral part of the US economy. However, that does not change the fact so many of these businesses fail every year. In fact, it’s not just limited to Latino community.
According to the US Bureau of Labor Statistics, 20.4% of small businesses fail in their first year, and 49.5% fail in the first five years.
As an entrepreneur, I am sure this is the last thing you want to consider. It is natural to envision things like business growth, scalability, and cash flows. But take it from a fellow entrepreneur: Use these statistics to drive your business growth.
Therefore, as a business owner, safeguarding your empressa’s (company) sustainability should be your priority. This means taking all the steps to ensure it runs smoothly during turbulent times.
One important yet underrated way of doing that is having an emergency fund for your business. You can consider this blog as your mini-guide on the importance of setting up an emergency fund for your Latino business.
What is a Business Emergency Fund?
An emergency fund, also called a contingency fund, is a chunk of money dedicated to unexpected circumstances that can threaten business continuity. It is meant for sudden financial challenges that can negatively impact business growth like a drop in sales, natural disasters, operational failures, cyberattacks, lawsuits, etc. In short, it is supposed to save your business from both spending and revenue shocks.
The emergency fund is usually set aside by businesses to cover months of expenses like bills, insurance costs, payroll, debt payments, rent, cybersecurity expenses, cloud computing service costs, etc. It should basically cover all the expenses that, when not paid, can lead a business towards failure.
Creating an Emergency Fund
No need to worry if you do not have an emergency fund for your business. Here is how you can create an emergency fund:
· Determine How Much Do You Need
As important as building an emergency fund is, it’s not rocket science. You can start by finding out the amount of cash you need in your emergency fund.
There is not one right answer in this scenario as it depends on the business. Some businesses are seasonal while others have the same operations all year round. To find out the ideal emergency fund amount, you can hire a financial consultant who can run numbers and evaluate your needs. The other way is to have at least five to six months of your monthly expenses set aside.
· Monthly Goals
No need to preocuparse (worry)! An emergency fund might seem like a big amount, but remember, slow and steady wins the race.
You can start saving by setting aside a certain chunk from your business’s monthly earnings every month. Just make sure the goal you set is reasonable and doable. You can always add more to the emergency fund in case monthly revenue and profits are more than the norm. This will help you create an emergency fund quicker than usual.
· Subscribe to an Online Budgeting App
That is one tip that I personally find super helpful. Be it personal saving or saving for business goals, having the help of a budgeting app is always a bendición (blessing).
Call it a budgeting app, a money-saving, or a money-management app, it does not matter. The goal is the same, i.e., to save cash. There are many apps and software that you can use that automates your savings. Mint, Digit, Xero, and QuickBooks are super helpful in this regard. Just make sure you have a stable internet connection for these online apps. Cox offers great business internet which is also essential for overall business continuity. Find the most suitable internet paquete (package) for your business by contacting Cox servicio al cliente en español.
· Consistency is Key
One important aspect of saving up for business emergency funds is consistency. Making sure you do it on priority, and doing it every month, is the only way you can create an emergency fund. Otherwise, there is always the possibility of this feat going to the back burner.
One way of ensuring consistency is saving according to your monthly revenue. Like making a goal to set aside 20% of revenue, be it less or more, every month ensures something goes into your emergency fund every month.
Benefits of Having an Emergency Fund
No business on earth is safe from an operational or financial emergency. There is simply no way to make your business immune to these emergencies. However, a contingency plan, i.e., an emergency fund, can ensure your business bounces back from any problem.
Here are some benefits of having an emergency fund for your Latino business:
- It saves you from debt. If you do not have an emergency plan, you will seek a loan in case of an emergency. This will put your business in debt.
- It keeps you away from stress. By knowing you have a financial cushion to fall back on, you can go about your business without worrying about disrupted business operations and emergencies.
- It ensures continuity of business operations, even in the most financially turbulent times. This adds to the overall growth of a business.
