Financial Contingency Funds in Business: Be Prepared for Emergencies

The unexpected is a part of life. This pattern has been reinforced time and time again.  

It’s reasonable to state that very few predicted the housing market crash.

Likewise, if before 2019, someone had told you a worldwide pandemic would have a dramatic impact on not only businesses, but every aspect of everyday life, would you have believed it?

During the unexpected, financial contingency funds in business are crucial to keep your company running. 

But does your business have cash reserves? Are you prepared for emergencies, whether it’s a natural disaster, broken machinery or economic downturn?

Do You Have a Healthy Financial Contingency Fund for Your Business?

At CAP3:Reveal, we’ve discovered that many company owners have questions concerning their cash reserves. It can often be confusing about where to start, how much cash you need in reserve, and how often to adjust the amount set aside. 

That’s why we want to serve as your resource to provide the answers you need; this is where clarity begins. 

When you work with CAP3:Reveal, you’ll discover that we’re not a vendor—we’re your partner. You don’t have to go it alone, and we want to handle the details so you can be free to take your business to its next level of growth. 

Wouldn’t it be wonderful to move forward with confidence knowing your business is in a financial position to succeed? 

With CAP3:Reveal, We’ll Take the Guesswork Out of Your Finances

We’ve got your back. Smart decisions need clear data, and by providing accuracy and clarity, we’ll make space for you to lead.

Interested in learning more about the financial health of your business? We would love an opportunity to speak with you. Just contact us for more information.

Next, let’s take a closer look at cash reserves/financial contingency funds and their role in sustaining a healthy business.

What’s the Purpose of a Contingency Fund in a Business?

Financial contingency funds in business are reserves that can be used to address unplanned financial issues that may arise. This helps ensure cash flow security and operational continuity.

What Type of Business Emergencies Should the Contingency Fund Cover?

Any unplanned emergency can be covered by the contingency fund. 

These can include:

• Natural disasters
• Major machinery failures
• Economic downturns
• The opportunity (or necessity) to purchase a large asset
• Legal issues
• Drop in revenue
• Unexpected increases in costs of raw materials, as can be experienced as a result of tariffs

How Much Should Be Stored in a Business Contingency Fund?

There are several aspects that can factor into how much you should have in your business emergency fund. It can vary depending on the size and scope of your company and the type of industry. Also, if your business is one that carries a significant liability risk, you may need to set aside more.

However, in general, we recommend that businesses start with three to six months’ worth of operating expenses in their financial contingency fund. 

Simple Steps on How to Build a Contingency Fund

We know that trying to have six months in cash reserves can seem overwhelming. But don’t worry. We’re here for you.

Here are some useful tips:

• You can start small by allocating a percentage of your monthly revenue.
• Find ways to automate savings whenever possible. 
• Eliminate expenses that are not essential to your business and redirect those funds to your cash reserves. 

At CAP3:Reveal, we’ve discovered that it is beneficial to set clear goals and establish a timeline for when these tasks will be completed. We’re more than happy to walk you through it and provide a helping hand. 

Do You Understand the Details of How to Manage Your Financial Contingency Funds?

It’s important to further define the role of cash reserves:

• They are not a way to compensate for overspending.
• They should be separate from your everyday accounts—but still accessible.
• They should be replenished immediately after use.
• There should be clear rules about when and how to use the fund.
• Everything should be meticulously documented.
• They should be adjusted accordingly as your business grows.
• Leadership should be “in the loop” at every step.

That’s a lot to take in, and we’re happy to help you manage the subtleties of having a robust financial contingency plan in business to protect you from the unexpected.

CAP3:Reveal Offers Focus For Your Business’ Stable Future

There are so many unknowns in business. You don’t have a crystal ball and can’t predict the future. However, clarity will go a long way toward making your company a stable force for any unprepared emergencies.

That’s where we come in. Your finances should not be one of those unknowns. From frustration at tax time to lack of clarity in QuickBooks, you can’t make the right decisions without the right data, and CAP3:Reveal bridges that gap.

With fractional CFO and bookkeeping services, you can let go of the stress and let us handle the numbers. 

We’d love the opportunity to meet you and be a partner in your success. Contact us to get started!