When you made the decision to open your business, did you stop and think about what you would do if there was a crisis in that business?
You should expect that when you own your own business, you are responsible and accountable when things go sideways. In fact, when you experience a crisis in your business, if you are not prepared, it can cause your business to falter and maybe even go into bankruptcy.
Back in 2006, I began my journey as a full time business owner. The first two years I didn’t pay myself a penny because I needed every cent to run my bricks and mortar retail store.
You might be thinking, “not a penny Lisa? Are you crazy?!”
The reality is when you open your business, you should expect to put money back into things like infrastructure, rent, employees or subcontractors, and or inventory.
You should set money aside for unexpected emergencies because they will happen.
As a business owner, you need to understand how money flows inside of your business before anything else.
It is absolutely critical that you understand the movement of money through your business or you will end up in a cash flow crunch. When you truly understand this, you can responsibly allocate your money into the proper places at the right time – not to mention you will know how much money is really yours to keep.
In my Money Mastermind Beta Group – one of the things we focused on this year, is the ability to anticipate expenses that may come up as well as unforeseen problems in your business.
So what do you do when your personal life suddenly spins into crisis mode, and your business is still in start-up?
When you work for a large corporation, there is usually a safety net that your employer provides. This comes in the form of benefits, sick days, vacation time and even lieu time. As a business owner there is no safety net unless you create it. For most people, when a crisis occurs, you end up worrying that you might have to close your business and that’s a big problem because as a business owner, there’s no way to make money if you’re not open for business.
We all have things that come up in our lives, unexpected and sometimes terrible. It could be a sick family member, the loss of a loved one, or even something that happens to you.
In 2015, I was hospitalized and was unable to work in my business for six weeks. This type of crisis can cause major setbacks and significant damage to your business. It could be anything – it doesn’t have to be your health, it could be a change in the marketplace, or an unexpected expensive repair in your business. You should expect these things to happen at some point.
When you build or renovate a house, you set aside money. It’s called a contingency fund.
Unfortunately, most business owners are living on such a tight budget that contingency usually means bankruptcy.
When you’re building a house, not having a contingency fund for unexpected expenses means you may not be able to afford the type of home you want. It’s the same thing in business. No fund and you risk not being able to operate.
As you build and grow your business, prioritize your contingency fund. Set aside some money in a place that you don’t access on a regular basis, so that it’s there for you when you really need it. It may cause your cashflow to be tight in the short term, but the added value and stress relief it provides in the long term is invaluable.
When you fully understand your numbers; you can build up a reserve fund that can keep your business running when bad things happen. You can stop wondering what the heck to do to keep your business afloat while going through the tough time, and that is really important.
Life is not predictable, life is not always fair, but what you can do is prepare yourself. That way if and when things go sideways, you don’t need to cloud your mind with financial fear.
Do you have a contingency fund? Do you think it should be commonplace to set up GoFundMe accounts for business owners who are in need? Or do you think this responsibility lies with the business owner to plan for these types of events?