Importance Of An Emergency Fund For Entrepreneurs

Your emergency fund probably isn't big enough. There, I said it. Most financial "experts" are still pushing the same outdated advice: "Save 3-6 months of expenses and you're good to go!" This could be dangerous for most business owners and high-earners today. → If you're bringing in variable income → If you're self-employed → If you have people depending on your earnings The standard 3-6 month emergency fund is playing with fire. Here's why: When you run your own business or have commission-based income, market downturns and economic factors don't just affect your investments—they hit your actual income. Exactly when you might need cash the most, your ability to generate it could be compromised. I've seen it happen: → The fitness business that had to completely shut down for 4+ months  → The sales professional whose commissions dried up for 3 months None of them anticipated these scenarios. All of them wished their cash reserves were larger. For business owners and variable income earners, this is probably more in line: → 6-12 months of expenses  → Separate business and personal emergency funds → Additional cash reserves for business opportunities This isn't about fear. It's about freedom. A robust emergency fund doesn't just protect you—it empowers you to take strategic risks, seize opportunities, and sleep soundly regardless of market conditions. Will this approach mean slower investing in the beginning? Maybe. Will you thank yourself when (not if) the unexpected happens? Absolutely. I'd rather see a fully funded emergency fund before focusing on growth.

Profit won't protect you from emergencies. Cash reserves will. Building a safety net for your company begins with your numbers: • Calculate total monthly payroll costs • Add up fixed operating expenses • Factor in upcoming tax obligations • Then 3x everything for a bare minimum safety net When you're running without the proper reserves? • All your decisions are panic driven • You end up accepting predatory loan terms (usually with BIG %) • You miss prime growth opportunities • And what's worse, you watch your business's foundation start to crack Every business faces cash emergencies... But the real difference between swimming or sinking has always been preparation. Start with this: → Open a dedicated account → Set up automatic monthly transfers (this is a must. cash won't deposit itself) → Create clear usage rules → Establish replenishment guidelines Start with 5% of your monthly revenue until you've covered three months of essential operations. When you get everything dialed in, your emergency fund WILL grow. Remember, the best time to build your safety net is before you need it.

Most founders think they have an emergency fund. Until they actually need one. They set aside a vague amount that feels right. But when the revenue dips, it barely lasts a month. I’ve seen it happen way too many times. That’s why I built my emergency fund with intention and not emotion. Here’s how I did it (and helped my clients do the same, too)- 1. Calculate your 3-month burn rate.  ⤷ This includes salaries, rent, tools taxes. That’s your base. 2. Add an extra buffer for “business hiccups.” ⤷ A slow quarter, late payments, or a surprise compliance bill. Expect the unexpected. 3. Automate 5-10% of monthly revenue into a separate account ⤷ No thinking. No skipping. Treat it like a non-negotiable expense. 4. Revisit it every quarter ⤷ As your business grows, so should your safety net. When you have a safety net, you stop making desperate decisions. You start making better ones.

There is one thing that has prevented by company from extremely bad times or worst case: Bankruptcy. That is — An Emergency Fund. Not just a personal one for a rainy day. Not $1,000 set aside. A realistic, sizable emergency fund for the business. My companies always have multiple bank accounts — one being dedicated for emergencies. Sometimes we have to replace a critical piece of equipment. Sometimes we have a repair or had an unexpected bill. Sometimes a client doesn’t pay their bill or we have a delay on an Accounts Receivable. Sometimes completely unpredictable, nearly unbelievable things happen that cost tons of money. But I’ve weathered through many ups and downs because of that buffer. Two critical lessons to learn from this though: 1. Your emergency funds *has* to grow as your business grows. Trust me. I’d love to go buy some fancy new warehouse toys with it too. But it has its, albeit boring, purpose. 2. You should focus more on it when times are going well, because when times are tough — it’s much harder to fill.