Weekend Argus (Sunday Edition) - - ECONOMY - BEN BIER­MAN Ben Bier­man is a man­ag­ing di­rec­tor at Busi­ness Part­ners Lim­ited.

SMALL and medium busi­nesses are par­tic­u­larly vul­ner­a­ble to fi­nan­cially drain­ing mishaps such as los­ing a big client, a law­suit, or any ac­ci­dent that is not cov­ered by in­sur­ance.

De­spite this, few have an emer­gency fund in place to deal with such be­cause most are fo­cused on the im­me­di­ate prac­ti­cal­i­ties of build­ing their busi­ness, rather than on vague risk as­sess­ments and plan­ning.

En­trepreneurs also tend to be chron­i­cally op­ti­mistic about the fu­ture good luck of their busi­ness.

Con­sid­er­ing South Africa’s un­der­per­form­ing econ­omy and ris­ing con­sumer price in­fla­tion, it is es­sen­tial that all busi­nesses save for a rainy day.

The fes­tive sea­son is of­ten a great time to kick-start such an emer­gency fund be­cause many sea­sonal busi­nesses tend to ex­pe­ri­ence in­creased con­sumer spend­ing driven by the in­flux of hol­i­day­mak­ers and shop­pers.

This spike in earn­ings of­fers the ideal op­por­tu­nity for busi­nesses to save some of the ex­tra money that they make, for an emer­gency fund.

When sav­ing to­wards the fund, it is vi­tal to set a goal. The rule of thumb is to have three to six months’ worth of over­heads set aside, but even just one month’s ex­penses are bet­ter than noth­ing.

The next step is to de­cide what con­sti­tutes an emer­gency. If the fund can be dipped into to avoid an awk­ward phone call to the land­lord to say that the rent will be slightly late this month, it will not last long.

A true emer­gency is one that threat­ens the sur­vival of the busi­ness.

Think­ing through and com­pil­ing a list of pos­si­ble emer­gen­cies that would jus­tify the use of the fund is there­fore a good risk-as­sess­ment ex­er­cise.

Thought also needs to be given to where an emer­gency fund should be kept.

Gam­bling with the money on the stock ex­change de­feats the pur­pose.

A money-mar­ket ac­count is a bet­ter op­tion, but it may be worth con­sid­er­ing an ac­count where the funds are not too eas­ily ac­ces­si­ble, so there is no temp­ta­tion to dip into it on a whim.

On the other hand, it should not be so in­ac­ces­si­ble that you can­not have it fairly soon when an emer­gency does strike.

Open a set of no­tice de­posit ac­counts with vary­ing no­tice pe­ri­ods so that a lim­ited amount can be ac­cessed im­me­di­ately, and some a lit­tle later, which al­lows for some in­ter­est to ac­crue while the money, hope­fully, will not be used any time soon.

Ul­ti­mately, how­ever, the will of the busi­ness to at­tain these sav­ings is crit­i­cally im­por­tant.

The cash de­mands in a busi­ness are so con­stant that any vague or half-hearted at­tempt to es­tab­lish an emer­gency fund will fail. It will have to be a con­scious and dis­ci­plined ef­fort by the busi­ness owner.

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