Cash reserves or “rainy day funds” aren’t just something your mom tells you to keep as a safety precaution, they’re a very real strategy that many businesses neglect to employ… often to their own demise.
A rainy-day fund prepares you for any risks you need to incur during a “slow season” or unforeseen circumstances, allowing you to use your savings to help cover a few months of expenses and prevent you from falling behind when business is slow. The reason that your rainy-day fund gets used doesn’t matter, the fact that you have it available is the only thing you’ll be happy about if the time should ever arise.
Now this type of contingency planning doesn’t happen overnight. In fact, it should be happening from the moment your business’s doors first open. If it's too late for that, the second-best time to start planning your emergency fund is now.
As a business owner how can you become adept at predicting and contingency planning?
The Power of Scenario Planning
A contingency plan is also known as a “what if” scenario. It’s where you think ahead to all the possible predicaments your business could find itself in, and then answer your own question: “what if X happens?”
Sometimes these scenarios are beyond your reasoning and control. For example, no one could have predicted a global pandemic, but it doesn’t change the fact that many businesses needed to adapt quickly and probably required them to use some of that rainy day fund to help keep employees at home for those first few weeks before they adapted to remote working.
To create a contingency plan or business cash reserve, there are four main steps:
- Rank your resources
- Identify key risks
- Create a first draft of your plan
- Distribute the plan
Rank your resources
Basically, first you will need to research and identify your resources within your organization. These can be anything from employees, tech systems, assets, and anything that puts you ahead of your competition. Rank these resources based on their priority when it comes to the continuity of your business. For example, if you can’t operate without at least 50% of your staff, identify who those people are and what their roles are when it comes to your business’s survival.
Identify key risks
Next, you can use a risk consultant, or you can go about identifying key risks yourself. Document anything that would pose a threat to your prioritized resources.
Create a first draft of your plan
You’ll want to write contingencies (and associated costs, if any) for each potential risk. Starting with the highest priority threats and moving down the list as each plan is solidified. A step-by-step plan should be created for each risk including when and what to communicate, what employees will do, and when to execute the plan.
If your business does not have enough cash reserves to cover your contingency plan, either the plan needs to change, or you need to start allocating more cash to your reserves.
After the plan has been approved by management and your risk advisor, distribute the plan to your stakeholders, employees or key staff members, and all business owners. These plans will need to be maintained, so it may be easier to use an issue/crisis management app to ensure everyone has access and it is easy to keep up to date.
Ensuring Your Business's Future with Dryrun Financial Forecasting Software
Establishing cash reserves or a "rainy day fund" is an essential strategy for any business aiming for longevity and stability. Such funds are crucial for navigating the unpredictable waters of business operations, whether it's a slow season or sudden, unforeseen circumstances. Having this financial safety net allows you to cover essential expenses during tough times without derailing your business's progress. The creation and maintenance of these funds are integral parts of effective contingency planning, a process that should begin as early as possible in your business's lifecycle.
Contingency planning, or creating "what if" scenarios, equips you to foresee and prepare for potential challenges your business might face. While it's impossible to predict every curveball, having a plan for the most significant risks ensures that your business can adapt and continue operations with minimal disruption. This process involves ranking your resources, identifying key risks, drafting a plan, and ensuring all stakeholders are informed and prepared to act.
But how can you effectively undertake this complex process of predicting future scenarios and allocating your resources accordingly? This is where Dryrun financial forecasting software comes into play. Dryrun simplifies the creation of contingency plans and the management of your business's cash reserves. It allows you to model various financial scenarios, including potential downturns and emergencies, providing you with clear, actionable insights on how different situations could affect your cash flow and reserves.
With Dryrun, you can prioritize resources, identify risks, and craft detailed contingency plans based on solid financial projections. This not only helps in safeguarding your business against future uncertainties but also in making informed decisions that align with your long-term goals. Dryrun's intuitive platform makes it easier to plan for emergencies, allocate funds for your rainy day reserves, and continuously update your contingency plans as your business and the external environment evolve.
In conclusion, while establishing a contingency plan and a rainy day fund is crucial, the task doesn't have to be daunting. Dryrun financial forecasting software offers a reliable and efficient solution for predicting, planning, and preparing for the future. By leveraging Dryrun, you can ensure that your business has the flexibility and resilience to weather any storm and thrive in the long term. Does your business have the tools it needs to plan for the unexpected? Consider Dryrun as your partner in building a secure and prosperous future.
Does your business have a contingency plan and emergency fund in place?
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Dryrun delivers real-time, dynamic cash flow and revenue forecasts with complete manual control and unlimited scenario modeling.
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