I have my own small business. My annual sales are just over $100,000, and I have a couple of months in administrative and general expenses set aside. Should I have an emergency fund for my company, too? If so, how much?
This is a great question! I like the idea of a small business having six months of expenses set aside in an emergency fund. A financial cushion like that provides peace of mind and options. Also, it eliminates the need for borrowing money. With that kind of cash sitting around, you basically become your own line of credit.
When it comes to personal finance, I usually recommend setting aside an emergency fund of three to six months of expenses—depending on a person’s overall financial condition. But the basic idea is the same, regardless of whether you’re talking about personal finance or the financial health of your small business.
An entrepreneur has enough to worry about on a day-to-day basis. Having a fully-funded emergency fund for your business can turn a disaster into nothing more than a minor inconvenience!
Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.