The U.S. Bureau of Labor Statistics reports that approximately one-third of all businesses fail within the first two years. Half fold within five years. And of the businesses that fail, a banking survey showed that 82 percent do so because of cash flow issues.
These numbers are not meant to keep small-business owners up at night or deter new entrepreneurs. They’re simply a statement of fact and should serve as a reality check for all small business owners: Having an emergency fund is not optional.
In business, the term used to describe emergency or rainy day funds is “retained earnings.” Retained earnings are cash supplies that are kept on hand to enable your business to continue operating in lean times or in an emergency. These funds allow your business to keep providing services while making payroll, paying bills, and purchasing supplies, and they allow you — the owner — to continue sustaining your family’s income.
Most businesses fail due to a lack of preparation for the inevitable. Here are three major reasons your small business needs an emergency fund. Read more.