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Running a business often involves managing expenses that can arise at any time. Common unforeseen expenses include equipment or vehicle failures, rising supply and inventory costs, professional service fees, workplace maintenance fees, and employee turnover and recruitment costs. If your business lacks adequate funds to cover the cost of these and other unexpected expenses, maintaining operations may be difficult. Moreover, this can lead to financial challenges.
Budgeting for future business needs is vital for success and stability. If you want to establish a financial cushion for your company, this Balboa Capital blog article has some useful tips and strategies. It explains how to plan for unexpected business expenses.
Build an emergency fund.
Setting aside money can be difficult, given the costs associated with running a company. However, with careful planning and mindful financial practices, it is possible to set aside funds for a rainy day or unexpected expenses. You can start by examining your company’s monthly operating costs (rent, payroll, utilities, marketing, etc.). Then, set a realistic savings goal to cover three to six months of expenses.
Opening a dedicated business savings account can separate your emergency funds from your operating cash. This allows you to grow your fund without dipping into it for regular business expenses. Just be sure to contribute regularly to the emergency fund, even if the amounts are small.
Save tax refunds and any extra business income.
Maximizing your company’s financial health involves more than earning income—it’s about making smart decisions with the money you receive. One such strategy is to save all or a portion of your tax refund in your emergency fund. While it might be tempting to use your tax refund to splurge on nonessential items or take a vacation, setting aside these additional funds can provide financial support in times of need.
Next, if your business generates extra income or profits that exceed expectations, consider saving some funds for the future. By saving this money instead of spending it, you can access funds for unexpected expenses and emergencies when they arise.
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Implement cost-cutting measures.
Reducing your business costs may help you save money that can be set aside for unexpected expenses. Implementing cost-cutting measures is simple and does not require a substantial operational overhaul. First, look at your company’s expense reports to identify areas where you can save money. For example, you can negotiate better terms with vendors and suppliers or shop around to find those with lower prices.
Next, consider eliminating or reducing spending in areas that aren’t providing a measurable benefit or that are draining your company’s resources. These might include paid advertising campaigns that are not generating a return on investment, paying for too many subscription services, and overspending on nonessential items.
Apply for a working capital loan.
Unforeseen costs can affect your company’s financial stability and make it difficult to cover various short-term expenses like employee payroll, utility bills, and retail or commercial space rent. That’s when a working capital loan is worth looking into. A working capital loan can help your business maintain smooth operations, manage cash flow fluctuations, and ensure it has the funding needed to meet financial obligations.
A working capital loan offers you quick access to funds so you can address unexpected expenses promptly. At Balboa Capital, for example, you can apply for a working capital loan from $20,000 to $250,000 with a simple online application, get a fast credit decision during regular hours, and receive funding on the same day if your application is approved.
Upgrade business equipment.
An inevitable part of running a business is that equipment, vehicles, and machinery will one day need to be replaced or repaired. Over time, wear and tear mean these assets may no longer function at peak performance and are more prone to breakdowns. This leads to downtime and costly repairs, not to mention missed deadlines that can impact your bottom line and brand reputation.
By upgrading your company’s equipment, you will reduce the chances of a breakdown and the unexpected expenses associated with it. Yes, investing in new equipment requires capital, but it’s an investment that can result in long-term savings and greater operational output. Rather than purchasing equipment outright, which can deplete your company’s savings, it may be beneficial to explore equipment financing. With this option, you receive funding to finance the assets and repay what you borrow over a set term.
Get adequate insurance coverage.
One way to safeguard your company against unforeseen expenses is to obtain business insurance coverage. Insurance provides a safety net that allows you to navigate unexpected financial challenges confidently. Whether it’s property damage from a natural disaster, liability claims, or sudden operational disruptions, having the right insurance coverage ensures that your business can withstand these events without a significant financial setback.
There are many types of business insurance coverage, including general liability, business income, commercial property, product liability, and Worker’s Compensation. Every business is unique, so consult with an insurance agent to discuss the types of coverage available and their limits and deductibles.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.