Do you have an emergency fund for yourself and your business?
Some events can affect your ability to work and generate income.
As a business owner, you may be exposed to additional risks further impacting your ability to conduct business and generate income.
Here are some examples:
- Insurance reimbursements are delayed or denied
- Technical malfunctions or a network gets hacked
- You have problems with employees
- There may be lawsuits and malpractice claims
- Changes in legislation affecting your profession
- Economic downturn affecting your practice
- Natural disasters such as tornadoes, hurricanes, earthquakes,
- Man-made disasters such as industrial accidents, structural failures, and terrorist attacks
And of course, there are personal events such as:
- Loss of income due to illness or injury
- Unexpected, non-covered medical expenses
- Loss of transportation due to accident or theft
- Divorce or separation
- Custody battles
Disastrous events can happen at any time. As challenging and disruptive as they are, the fallout is worse if you can’t deal with them financially.
No matter if you get sick or can’t use your office for a couple of months because of an explosion, you still need to pay rent, salaries, insurance, and put food on the table.
Building an emergency fund to help you get through a rough spot is critical, so you don’t have to close your business or assume debt and the associated interest.
For Individuals
While the benefits of having a fund are obvious, often it’s not clear how much you would need if you were faced with an emergency.
Generally, the recommendation is to have an emergency fund big enough to cover three to six months of expenses for individuals and families.
Of course, the emergency fund size varies with the number of people in your household, your lifestyle, and other variables.
Let’s say your monthly expenses are $5K, you would need anywhere from $ 15 K to $30 K in your emergency fund… a sizable amount.
For Businesses
The same is true; the recommendation is to have a fund big enough to cover three to six months of business expenses so you can stay afloat.
Depending on the size of your practice and related expenses, that may be a significant amount.
If you are a new or struggling practice, you may wonder how to build an emergency fund.
One step at a time…
Building an emergency fund may take time. However, it is a crucial step in ensuring financial stability and resilience during tough times.
Strategies
There are countless ways to build an emergency fund for your practice; here are some strategies to consider:
- Reduce your Expenses: Start with the obvious. Go through your current expenses and identify any non-essential costs that can be trimmed. No matter how small the savings, over time they add up and can be redirected towards an emergency fund.
- Increase Revenue Streams: Consider offering additional services to bring in more revenue. Perhaps you could offer telehealth services, specialized clinics, or wellness programs that could attract more patients and create additional income.
- Set Specific Savings Goals: Determine how much money your practice needs in its emergency fund. Set clear, achievable milestones for savings.
- Automate Savings: Make saving funds effortless by setting up automatic transfers to a dedicated account. This ensures that a portion of every income is saved before it can be spent on other things.
- Optimize Billing and Collections: Focus on your billing process to improve cash flow. This might involve more aggressive follow-up on unpaid invoices, improving your front-desk operations, offering payment plans to patients, or using a billing service to ensure efficiency.
- Cut Costs through Bulk Buying: For regularly used supplies, consider bulk purchasing to save money. If possible, bulk buy with other clinics to get better pricing. Put any savings toward your emergency fund.
- Rent out Space: Consider subletting space to other NPs or providers where possible. Be sure to stay within the terms of your lease.
- Grants and Subsidies: Depending on the type of practice or the area you serve, consider looking for grants, subsidies, or government programs designed to support small healthcare practices.
Where to keep the Fund?
You may be wondering where you should keep your emergency fund. Good question, particularly as your fund grows.
First, don’t mix your emergency fund with your checking or savings account. Open a separate, dedicated interest-earning account for your emergency fund and don’t touch the money unless there is an emergency.
The money in your emergency fund should be safe, easily accessible, and earn you some interest.
Which leaves out keeping it at home under the mattress, illiquid instruments such as CDs, or risky investments like stocks.
A money market or a high-yielding savings account is an acceptable option to keep your emergency cash. Make sure the account is FDIC insured.
Shop around for high-interest-bearing accounts and be sure to read the fine print before you open the account.
Also, take the time to look for hidden account fees such as monthly maintenance, minimum balance, early withdrawals, and other fees.
Check sites like Nerdwallet.com, Bankrate.com, and Investopedia.com for current account rates. Don’t forget to check your local Credit Union and Bank too.
Please note that we do not endorse particular websites; we simply provide information to help you get started.
In Summary,
Is it safe to say we all agree on the importance of building an emergency fund for our business and personal lives?
Good…
Starting the fund may seem overwhelming at first. Don’t let it deter you. Regularly contribute to your fund, no matter how small the amount.
Keep your eye on the price; the account will grow over time.
Hopefully, you won’t ever have to use it!
Please tell us what you think… we want to hear from you. What do you do to keep your emergency fund safe and healthy?
Join the conversation, leave your comment below…
By Johanna Hofmann, MBA, MAc., EAMP; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.“