#30 How do you prepare for unexpected business costs?
As a business owner you’re bound to have unexpected expenses come up at some point? It’s not if, it’s when.
These expenses could be big or small and being prepared to take any kind of financial hit is something that we want to think about now, before we’re in financial distress. In this episode, we’re discussing how to prepare for unexpected business expenses and, and how to save for a rainy day.
It’s time to prepare for the unexpected!
What we’re talking about
- Foreseeing Unexpected Costs
- What Costs Will Impact You?
- Pre-Thinking About Your Solution
- The Importance of Building A Savings
Foreseeing Unexpected Costs
One of the best ways to prepare for unexpected expenses is to foresee them coming. Make a list of all of your annual, quarterly, and every other year expenses.
If you are using bookkeeping software, like QuickBooks Online, you can record these expenses into your system as recurring transactions and have the system auto-enter the transactions 10-30 days in advace. This helps you see, in real time, the expenses that are coming up in your business and plan for them. You’ll be able to see the impact of these expenses on your bank balance and make sure you have adequate cash flow.
You might be thinking, “How does a list help me prepare for the unexpected? Shouldn’t I be saving?”
Saving is great and should definitely be a long term part of your financial plan, but not everyone can start saving right now. Foreseeing unexpected expenses, and knowing when you need to start planning for them, will help you prepare, even if you can’t save.
What Costs Will Impact You?
The next step is to identify what unexpected expenses would actually impact you. Not every expense will have a significant impact on your financial situation. Making this list will help you narrow down the types of expenses you need to plan for.
Create a list of all kinds of expenses, both big and small from a phone charger to a new laptop. Decide what your cost threshold will be. What kind of costs will make you feel stressed or unprepared? Identify these costs and the type of expenses that could come out of them.
Next, determine which expenses are essential to run your business. In other words, what types of expenses are urgent needs for your business? Something like replacing a broken laptop would be much more urgent than replacing broken headphones, which, while inconvenient, you could live without for a few weeks.
Pre-Thinking About Your Solution
The last step is to decide how you’ll handle unexpected expenses. What are all the possible solutions? Our first time thinking about the solution to an unexpected expense shouldn’t when it first happens. You’ll likely be stressed and anxious about the financial impact and make reactive decisions.
Think creatively here! Not every solution needs to involve money.
For example, one solution for an expense like needing a new laptop would be to utilize an old one until you can afford a new one. Consider different ways you could handle the same situation.
The Importance of Building A Savings
Let’s also talk about business savings. You should already be saving for your taxes, but you should also focus on building your business emergency fund. I’m a fan of diversifying how I save and leaning into automations.
The first way to do this is by a simple automated bank transfer. You can do this on a weekly, monthly or bi-monthly basis. These types of transfers tend to be larger, more substantial amounts and I consider this macro-savings.
The second way to save is through micro-saving and using savings apps, such as Qapital or Digit. Micro-saving is saving smaller amounts such as $0.60 or $3 per day. This type of savings doesn’t impact your cash flow as much, and adds up quickly over time. I am a fan of pairing macro-savings with micro-savings!
Are you building a cash reserve and preparing for the unexpected?
Note: This post contains affiliate links to products that I use, know, and love! Affiliate links mean that if you sign up for something through my link I receive a small commission. I only recommend products that I have tested, use for myself or with my clients.
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