Steps to Building a Business Emergency Fund

Monday, 5 Apr 2021

The COVID-19 pandemic made all the entrepreneurs take a step back and consider the repercussions of the crisis carefully. It made even the biggest conglomerates in Melbourne take a blow while the small businesses struggled to stay a float.

As we move towards a better future with the economy showing signs of recovery and commercial ventures coming back on track, the emphasis on contingency planning has soared. Most business owners have realised the importance of an emergency fund that can help them to stay safe in unforeseen catastrophic situations.

Most bookkeepers in Melbourne create an emergency fund for the business while managing the books to be able to pay for the unanticipated costs. Since small businesses often struggle with allocating capital to the fund, here are the steps that will help you save for the rainy day.

1. Understand the Minimum Requirement

The first step is to understand the bare minimum amount required to function in a shortage of funds so that you do not have to pull the shutters down in a crisis. The least required capital should include all the needs of the small business in Melbourne, such as employee salaries, utilities, stock, lease, etc. These expenses are fixed and cannot be changed.

Thus, you need to have an emergency fund that can cover these expenses for a few months. Your bookkeeper will help you to determine the actual cost of these needs and separate them from unnecessary expenses to be able to save the right amount. Thus, you will be able to pay the bills and will not have to spend from your savings to meet the financial crunch.

2. Save As You Go

Once you are generating profits, your bookkeeper shall advise you about making savings that are enough to act as working capital for a couple of months. You can start small even if you think you are not making enough profits.

You can only put a few dollars in the savings account but make sure that you are doing it regularly. Over the years, every dollar you save will help in creating a cumulative emergency fund that can help you sail through the troubled waters.

Some entrepreneurs in Melbourne follow the annualised percentage rule, which requires saving 10% to 30% of the annual revenue generated by the business. Setting a realistic target will aid in the achievement of the goal quickly. You can put money aside monthly, quarterly, or annually according to your bookkeeper’s recommendation.

3. Make Sure You Are Covered for the Dry Spell

There are certain months when the business is particularly good and there are some periods where the sales drop drastically. Thus, it makes perfect sense to save during peak times when the cash flow is excellent.

You may want to spend this extra income on upgrading the Melbourne office or planning an off-site with the entire team. However, you must pay heed to the advice of a professional bookkeeper and save as much as possible.

You can settle for a team lunch rather than a holiday and avoid any other needless expense. It is the best time to make extra savings so that you do not feel financially distressed during the dry spells.

4. Prepare For Various Emergencies

Small upheavals may not require draining the emergency fund, but there can be bigger challenges that can bring the operations to a standstill, such as the COVID-19 pandemic. The unprecedented situation created by the virus stopped businesses in Melbourne from operating in their usual routine and led to huge losses.

Similarly, natural disasters like bushfires, droughts, cyclones, etc., can destroy the office premises and put you out of business for months. In addition, there is the threat of losing a big account to a competitor or getting caught in a malicious scam that tarnishes the image of the entity. All of these can make you look for ways to survive in tough times, and the emergency fund can come in handy in such situations.

5. Other Resources That Can Be Leveraged

The pandemic left several small businesses in Melbourne financially distressed. It was impossible to carry on with the limited emergency fund when the sales went down to zero. Many organisations had to lay off employees to save their businesses.

Most entrepreneurs looked at other sources to salvage their ventures, such as job keeper supplement, commercial tenancy relief, business support package, expanded payroll tax deferral, etc.

Besides these pandemic-specific relief programs, you can opt for business loans, seek investment from angel investors or venture capitalists, or ask for funds from family and friends in times of calamity. You can ask your bookkeeper to secure the required funds in these situations.

6. Make The Fund Grow

When you start saving for the emergency fund, you can put the money in the same business account. However, when it starts increasing, make sure to put it in a high returns savings account in Melbourne or any other type of saving account recommended by the bookkeeper. It will help you save more than expected with the added interest.

However, do not think of investing it and locking it up, which will lead to paying penalties if you withdraw before the maturity date. Ask your bookkeeper for the best way to save it. Work on using the working capital for improving liquidity and making the organisation more productive.

 7. Do Not Stop Saving

Once you have been able to save the minimum amount required to stay afloat for three to six months, you may become complacent. However, do not let the achievement of the goal go to your head.

Since you are already in the habit of saving and cutting down on redundant costs, you must continue with the trend to have as much capital on hand as possible. Savings have no limit. You can stash up for ages without touching the money.

It will help you to make bolder decisions as you will have something to fall back on. You can ask your bookkeeper to automate the transfer of funds after fixed periods so that you do not miss out on the savings. Also, never use money from this emergency fund to pay your bills. Consider it as a sacred amount that remains untouched.


As a business owner, you have to be on your guard to make sure that your entity is not being adversely affected by a financial crunch. Thus, most bookkeepers in Melbourne ensure setting aside an emergency fund that can help them prepare for choppy waters.

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