Why Building Your Emergency Fund is Crucial for Your Small Business

Catherine Stork
Jun 2
2 min read

Running a small business means wearing a lot of hats, and reacting quickly when things don’t go to plan. From unexpected tax bills to late client payments or a slow sales month, surprises can hit your bottom line hard. That’s where an emergency fund comes in. It might not sound glamorous, but a well-stocked emergency pot can be the difference between weathering a storm or feeling like you’re sinking.

In this month’s blog post, we dive into why it matters, how much you might need, and how to start building one, all without throwing your day-to-day cash flow off track.

Why Your Business Needs an Emergency Fund

Even the best-run businesses hit the odd bump in the road. An emergency fund acts as a financial buffer, helping you cover costs when revenue takes a dip, or when you’re faced with an unexpected expense.

According to recent research, over 38% of UK small businesses have less than three months’ worth of cash reserves. That’s a risky position to be in.

Having a fund in place gives you time to think, adapt, and recover, without a last minute panic or scrambling for a loan.

How Much Should You Set Aside?

There’s no one-size-fits-all number, but a common guideline is to save three to six months’ worth of essential expenses. Consider rent, salaries, utilities, subscriptions, supplier payments and anything you’d need to keep the lights on.

How to Start Building Your Fund

The best way to build your emergency fund? Treat it like a non-negotiable expense. Start small if needed. Even having £1,000 to £3,000 set aside can offer breathing space for a sole trader or small team. Working with an accountant to find areas to trim or optimise can help build this buffer.

When (and When Not) to Use It

Emergency funds should be saved for actual emergencies. Yes, that means leaving it alone when it comes to everyday cash flow gaps or a bit of overspending.

Genuine reasons might include:

• A late-paying client creating a shortf all

• Equipment breakdowns

• Staff illness or cover

• Business interruption (think: flood, power cuts, supply chain delays)

The goal is to use the fund when you truly need to, then top it back up as soon as possible.

Need a helping hand with building your business emergency fund? Get in touch today with Catherine on 01423 431 889 or email catherine@bctaccountants.co.uk for your FREE consultation call.