Close this search box.
Blog » Business Tips » How Big Should Your Emergency Fund Be as a Business Owner?

How Big Should Your Emergency Fund Be as a Business Owner?

Simple Money Cheat Sheets

There’s no denying it. All business owners need a solid emergency fund. While you are in charge of your own income, it’s bound to fluctuate and you may have some rougher months as a result.

This is why it’s best to be prepared with a fully funded business emergency fund that you can fall back on during lower income months. The term ‘fully funding’ is subjective especially for business owners.

If you’re self-employed or run a business, how big should your business emergency fund really be to provide peace of mind and help you tackle whatever life throws your way? Here are a few questions to ask yourself to help you decide.

How Much Cash Have You Been Using?

Start by considering how much money you’ve been spending in your business over the past few months. What are your monthly business expenses? Also, what do your monthly personal expenses add up to?

If your business is your sole source of income, it’s best to factor in your personal budget as it would be in jeopardy if your income decreased at all.

It’s important to know your monthly numbers so you can then decide how long you’d expect your funds to last. In the worst case scenario, your business could earn $0 for the month. Which expenses would you still need to take care of?

Is Your Business Easily Adaptable?

Next, consider the niche you’re in. Would it be easy for you to pivot and change your products or service offerings if the market changed? Or, do you have a specialized niche meaning it would take time to adapt to any sudden changes in the market?

If your business is diversified, you will likely have a better chance of earning a consistent income. If you have a seasonal business or do work in a very specialized niche, you’ll want to set aside more money.

How Long Would it Take You to Bounce Back?

If you suddenly lost a source of income in your business, how long would it take you to bounce back and replace it? For my business, I feel confident that I could replace a lost source of income within 3 months or less.

I could send pitches to new clients and onboard with them or create new products and service offers in maybe a month or two.

I don’t have a huge team so that means employees aren’t depending on me for a paycheck. Plus, I’m not the only one in my household who can earn an income so I know my husband could increase his efforts and help soften the blow if my income were to drop severely.

Summary – So How Big Should Your Business Emergency Fund Be?

I’d recommend setting aside an amount that makes you feel comfortable and brings you peace. For business owners, it’s best to set aside anywhere from 5 months to 12 months worth of expenses in my opinion.

You can start with two or three months, but you never really know what can happen and it’s better to be overprepared than underprepared.

Store your savings in a high-yield savings account so it can earn interest.

About Due’s Editorial Process

We uphold a strict editorial policy that focuses on factual accuracy, relevance, and impartiality. Our content, created by leading finance and industry experts, is reviewed by a team of seasoned editors to ensure compliance with the highest standards in reporting and publishing.

Debt Expert and Financial Writer
Choncé Maddox is a debt expert. She helps ambitious millennials and Generation Z get our of the mounds of debt they are in following college. In 2015 she realized she couldn’t afford to do her own laundry, she was so broke. She had to make a change. Over the next three years she personally tackled $50,000 in debt and became debt free. She teaches others her passion since.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.


Top Trending Posts

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More