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How to Prepare for Unexpected Costs

Entrepreneurs

As a business owner, you face constant financial challenges. No matter how cautious you are against the risks you face or how well-thought-out your risk management strategies are, many factors are out of your control.

You may already be operating on a tight budget, and adding a new challenge you didn’t see coming is likely a daunting experience. This is why, in this article, we want to remind you of the unpredictable mishaps that can happen at any given time and present you with solutions so you’re prepared.

As a business owner, you face constant financial challenges. No matter how cautious you are against the risks you face or how well-thought-out your risk management strategies are, many factors are out of your control.

You may already be operating on a tight budget, and adding a new challenge you didn’t see coming is likely a daunting experience. This is why, in this article, we want to remind you of the unpredictable mishaps that can happen at any given time and present you with solutions so you’re prepared.

Unexpected Costs Businesses Face

Below are the most common unanticipated situations businesses face:

• Equipment repair and replacement
• Shifting supply costs
• Professional fees
• Inventory shrinkage
• Damaged inventory
• Tax code changes
• Supplier cost increase
• Insurance hikes
• Rent spikes
• Benefits
• Delayed payments
• Sudden illness

 

How to Prepare for Unexpected Costs

While you can't predict these problems, you can prepare to handle them effectively. These are measures you can take to protect yourself against unforeseen circumstances:

Create a Contingency Plan

Think of this as an emergency manual for your business. This involves creating a document that outlines a step-by-step response to every possible disaster your business can encounter — such as a cyberattack, fire, supply-chain mishap and economic disruption.

Follow this guide from Forbes Adviser to build a comprehensive plan for every scenario.

Build an Emergency Fund

You never know how fast a situation can go awry, so you can never go wrong with having an emergency reserve of cash on hand for immediate use. Devoting a certain percentage of your revenue to savings may protect you from greater losses.

A separate savings or sub-checking account is the best place to store this cash reserve so it can be used promptly. You can use this short article from Zeni to help you create a fund that works best for you.

Review Your Insurance

The sole purpose of insurance is to provide a financial safety net you can lean on for unanticipated costs. It’s your best protection, and you deserve the best coverages and rates.

Take some time to assess the risks your business faces based on their likelihood and severity, then review your insurance policies and ensure you are getting the best value. If you are unsure or want to explore different options, read the U.S. Chamber of Commerce’s business insurance guide on choosing the right plan. 

Monitor Your Cash Flow

As you know, cash flow is a huge indicator of your business’s financial health. Keeping a watchful eye over these financials enables you to better understand your business’s day-to-day fiscal flexibility, which helps you prepare for and respond to unimaginable situations.

It’s important to keep precise records of your business’s profits and losses, look at them holistically and see if you need to make any adjustments. This article from finmark.com provides several tips for monitoring your cash flow.

Review Supplier and Vendor Agreements

Your supplier or vendor contracts may contain certain conditions — such as minimum order requirements and on-demand payment terms — that may restrict your flexibility when operating on a tight budget.

It’s essential to be able to adapt to future economic conditions. You should review your current agreements and see if there are any parts you can renegotiate to give yourself some more financial breathing room.

Seek Professional Advice

Employing the help of accountants, financial planners and lawyers may sound costly, but it is beneficial to your business’s health in the long run. These experts can help you implement money-saving strategies and steer you away from costly mistakes and risks.

In your search for financial or legal expertise, it’s important to do your research on every firm in which you’re interested. Compare rates, search extensively for reviews and find any information you can before deciding which one to give your business.

Get a Business Line of Credit

A business credit line can be a great resource for short-term, fluctuating instances where you need to borrow money. They offer more flexibility than general loans, as you only pay for what you need, and your payments replenish your available credit.

Check out NerdWallet’s comparison of the nine best business line of credit programs; it provides up-to-date details and an in-depth review of each offering.

Upgrade Equipment and Check Warranties

A repair bill is not cheap, but it is avoidable. Staying on top of your equipment’s warranties will guarantee you never pay for certain repairs, except if you use the equipment for something you aren’t supposed to do.

Take time every few months to ensure your equipment is in good condition and check their respective warranties. If a warranty is about to expire and you want to keep that piece of equipment, ensure you take out an extended warranty on it as soon as possible.

We understand these measures may sound very time-consuming. However, if you can find the time to review and take steps to make these adjustments to prevent significant financial constraints, your efforts can be gratifying; think of all the possibilities for your business, yourself or your employees to grow and achieve more success.

If you liked this article, learn more about how the American Independent Business Coalition can support you by visiting aibcoalition.com

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