Every small business needs to have an emergency fund. These are separate savings or funds that a business can use when they are in trouble. These funds shouldn’t be confused with savings for long terms goals or investments.<\/p>\n
The funds should ideally remain untouched so that if any adverse event does take place, these funds can help you through the crisis. No business should ever think that they are 100% safe from uncertainties or crises.<\/p>\n
Why do we need an emergency fund for small eCommerce businesses?<\/strong><\/h2>\n1. Uncertainties <\/strong><\/h3>\nThe coronavirus was the biggest disruptor that we saw. It had the capability of shutting down millions of jobs and caused lockdowns that caused immense suffering and pain. Small businesses were one of the hardest hit during this period. This is why it is even more important for small brands and businesses to create separate savings only for emergencies.<\/p>\n
You never know when your small online business might be disrupted by:<\/p>\n
\n- Calamities<\/li>\n
- Natural disasters<\/li>\n
- Supply chain disruption<\/li>\n
- Bankruptcy<\/li>\n
- Lawsuit<\/li>\n
- Medical emergency<\/li>\n
- Family emergency<\/li>\n<\/ul>\n
![\"emergency](\"https:\/\/www.instamojo.com\/blog\/wp-content\/uploads\/2022\/01\/emergency-fund-for-small-businesses-1024x663.png\")
Source: World Economic Forum<\/figcaption><\/figure>\nHaving an emergency fund can help sustain your small business for a short time, while things get back to normal. This has been a lesson that every small business owner realised because of the global pandemic.<\/a><\/p>\n2. Savings over loans<\/strong><\/h3>\nIt is also easier for small eCommerce businesses to have a dedicated fund that they can keep adding to while growing their business. The other option is taking loans or depending upon credit when there is an emergency.<\/p>\n
In this scenario, there is a huge risk of the debt snowballing and you might get stuck in a vicious cycle of repayments and interests.<\/p>\n
How to build an emergency fund for small eCommerce businesses in three steps!\u00a0<\/strong><\/h2>\nStep 1: Planning an emergency fund for eCommerce businesses<\/strong><\/h3>\n1. Determine the fund amount and duration<\/strong><\/h4>\nThe first thing you should do is decide on a goal. Is your goal to ensure your small business keeps running for a specific time? The goal amount should also be decided while keeping in mind that the amount should be enough to continue your current lifestyle and help you pay all your bills. The emergency fund is supposed to be an addition to your costs of living, not a part of it.<\/p>\n
The rule of thumb is that an emergency fund should have an amount of money that can help you survive for three months<\/span> even without any income.\u00a0<\/strong><\/p><\/blockquote>\nBut, every small eCommerce business owner has a unique requirement. While deciding an amount, keep in mind:<\/p>\n
\n- The needs that your company has<\/li>\n
- The fixed costs that your company has (The money that you would need to pay even if your revenue is zero)<\/li>\n
- The potential pitfalls and risks it has<\/li>\n
- Your lifestyle and expenses<\/li>\n
- Your profit margins<\/li>\n
- Health concerns<\/li>\n
- Presence of external support (Like family or friends)<\/li>\n
- Degree of dependency (Do you have children?)<\/li>\n<\/ul>\n
2. Allocating funds<\/strong><\/h4>\nNow that you have an amount in mind that you want to save. Next is to understand how much should you save every month<\/p>\n
The easiest method to follow would be the 50\/30\/20 rule for budgeting. Divide your entire month’s income into chunks. 50% of your income should be spent on basic needs to keep your small business running. 30% of the income should go into ‘wants’, so things that you as a small business owner want to spend to help grow your small business.<\/p>\n
The remaining 20% should go into your savings that should stay preserved till you really need it. An emergency fund needs to be carved out of this 20%. So that even if 10% of the money goes into buying a car or buying a house, the rest of the 10% remains untouched.<\/p>\n
<\/p>\n![\"eCommerce](\"https:\/\/www.instamojo.com\/blog\/wp-content\/uploads\/2022\/01\/eCommerce-emergency-fund-small-business-.png\")
Source: Mint Notion<\/figcaption><\/figure>\nHere is a short guide on how to make a marketing budget for your small business.\u00a0<\/a><\/strong><\/p>\n3. Build a network<\/strong><\/h4>\nEven in the worst of times, it is crucial that you realise you are not alone. Instamojo saw 3 Crore, new users, on its platform in 2022. This is the year for DTC brands and small businesses to shine online. This is why building a network or community is important. Communities not only help you feel less alone, but the knowledge shared between similar entrepreneurs can also be extremely valuable.<\/p>\n
Actively look for communities to be a part of on social media, or through your contacts. Having a steady network can be of use when you’re business is suffering.<\/p>\n
Being part of a community can also help you gain knowledge about multiple professional organisations that can offer support to eCommerce businesses. In fact, you will also be able to gain quick knowledge about useful schemes<\/a> released by the government.<\/p>\nBuilding a network helps you gain access to valuable resources helping you postpone your need to dip into your emergency fund.<\/p>\n
Join Instamojo’s WhatsApp community to connect to like-minded small eCommerce business owners. Discuss and brainstorm with other entrepreneurs and amplify your strengths.\u00a0<\/strong><\/p>\nJoin WhatsApp Community<\/a><\/p>\n<\/blockquote>\nStep 2: Saving for an emergency fund for eCommerce businesses<\/strong><\/h3>\n1. Tracking income and expenses<\/strong><\/h4>\nTo have an adequate emergency fund, and to constantly increase it, you also need to be aware of your businesses expenses. Tracking the incomes and expenses of your small business should always be a priority to ensure your small business builds financial resilience. Tracking your income tells you if you can slowly increase the funds you are keeping aside every month.<\/p>\n
You should also consistently track your expenses like money spent on utilities, investments, bills, purchases, advertising, legal fees etc. It can also help you understand all cash outflows, making it easier for you to implement cost-cutting strategies.<\/p><\/blockquote>\n
Managing and observing your business operations on a daily basis helps you make informed choices about your savings, investments and your emergency fund.<\/p>\n
2. Diversification of supply chain<\/strong><\/h4>\nIt is important for your small business to minimise its risks. This also builds the financial resilience of your small online business. Some ways to build this resilience is by diversifying your eCommerce business’s supply chain. So that, even if one fails, you have the option of turning to another.<\/p>\n
You need to ensure that you have diversified your:<\/p>\n
\n- Courier and shipping service providers<\/li>\n
- Warehousing<\/li>\n
- Sales channels<\/li>\n
- Fulfilment companies<\/li>\n<\/ul>\n
Also read:\u00a05 Affordable Shipping Services in India for Online Businesses<\/a><\/strong><\/p><\/blockquote>\n3. Discounts and sales\u00a0<\/strong><\/h4>\nTo ensure higher savings, you also need to ensure your cash flow keeps increasing. There are several ways you can boost profits for your eCommerce business.<\/p>\n
\n- Run promotions on your online store<\/li>\n
- Offer exclusive discounts<\/li>\n
- Try early bird offers for digital events<\/li>\n
- Hold festive sales<\/li>\n<\/ol>\n
Read these blogs to know more about how to increase your sales using discounts:\u00a0<\/strong><\/p>\n\n- How to use discount pricing strategies to make more sales<\/a><\/li>\n
- How to prepare your online business for the festive season<\/a><\/li>\n<\/ul>\n
4. Technology-based solutions<\/strong><\/h4>\nSmall online eCommerce stores should not shy away from leveraging technology-based solutions. If you are finding it hard to keep track of your income and expenses, there are several apps that can do it for you. From inventory management<\/a><\/strong> to managing finances, there are hundreds of apps out there that can help you streamline your business operations.<\/p>\nFinancial technology or Fintech apps have recently gained a lot of popularity in India. From easy access to credit to managing existing money, these apps can be a blessing.\u00a0<\/span><\/p>\n
The coronavirus was the biggest disruptor that we saw. It had the capability of shutting down millions of jobs and caused lockdowns that caused immense suffering and pain. Small businesses were one of the hardest hit during this period. This is why it is even more important for small brands and businesses to create separate savings only for emergencies.<\/p>\n
You never know when your small online business might be disrupted by:<\/p>\n
- \n
- Calamities<\/li>\n
- Natural disasters<\/li>\n
- Supply chain disruption<\/li>\n
- Bankruptcy<\/li>\n
- Lawsuit<\/li>\n
- Medical emergency<\/li>\n
- Family emergency<\/li>\n<\/ul>\n
Source: World Economic Forum<\/figcaption><\/figure>\n Having an emergency fund can help sustain your small business for a short time, while things get back to normal. This has been a lesson that every small business owner realised because of the global pandemic.<\/a><\/p>\n
2. Savings over loans<\/strong><\/h3>\n
It is also easier for small eCommerce businesses to have a dedicated fund that they can keep adding to while growing their business. The other option is taking loans or depending upon credit when there is an emergency.<\/p>\n
In this scenario, there is a huge risk of the debt snowballing and you might get stuck in a vicious cycle of repayments and interests.<\/p>\n
How to build an emergency fund for small eCommerce businesses in three steps!\u00a0<\/strong><\/h2>\n
Step 1: Planning an emergency fund for eCommerce businesses<\/strong><\/h3>\n
1. Determine the fund amount and duration<\/strong><\/h4>\n
The first thing you should do is decide on a goal. Is your goal to ensure your small business keeps running for a specific time? The goal amount should also be decided while keeping in mind that the amount should be enough to continue your current lifestyle and help you pay all your bills. The emergency fund is supposed to be an addition to your costs of living, not a part of it.<\/p>\n
The rule of thumb is that an emergency fund should have an amount of money that can help you survive for three months<\/span> even without any income.\u00a0<\/strong><\/p><\/blockquote>\n
But, every small eCommerce business owner has a unique requirement. While deciding an amount, keep in mind:<\/p>\n
- \n
- The needs that your company has<\/li>\n
- The fixed costs that your company has (The money that you would need to pay even if your revenue is zero)<\/li>\n
- The potential pitfalls and risks it has<\/li>\n
- Your lifestyle and expenses<\/li>\n
- Your profit margins<\/li>\n
- Health concerns<\/li>\n
- Presence of external support (Like family or friends)<\/li>\n
- Degree of dependency (Do you have children?)<\/li>\n<\/ul>\n
2. Allocating funds<\/strong><\/h4>\n
Now that you have an amount in mind that you want to save. Next is to understand how much should you save every month<\/p>\n
The easiest method to follow would be the 50\/30\/20 rule for budgeting. Divide your entire month’s income into chunks. 50% of your income should be spent on basic needs to keep your small business running. 30% of the income should go into ‘wants’, so things that you as a small business owner want to spend to help grow your small business.<\/p>\n
The remaining 20% should go into your savings that should stay preserved till you really need it. An emergency fund needs to be carved out of this 20%. So that even if 10% of the money goes into buying a car or buying a house, the rest of the 10% remains untouched.<\/p>\n
<\/p>\n
Source: Mint Notion<\/figcaption><\/figure>\n Here is a short guide on how to make a marketing budget for your small business.\u00a0<\/a><\/strong><\/p>\n
3. Build a network<\/strong><\/h4>\n
Even in the worst of times, it is crucial that you realise you are not alone. Instamojo saw 3 Crore, new users, on its platform in 2022. This is the year for DTC brands and small businesses to shine online. This is why building a network or community is important. Communities not only help you feel less alone, but the knowledge shared between similar entrepreneurs can also be extremely valuable.<\/p>\n
Actively look for communities to be a part of on social media, or through your contacts. Having a steady network can be of use when you’re business is suffering.<\/p>\n
Being part of a community can also help you gain knowledge about multiple professional organisations that can offer support to eCommerce businesses. In fact, you will also be able to gain quick knowledge about useful schemes<\/a> released by the government.<\/p>\n
Building a network helps you gain access to valuable resources helping you postpone your need to dip into your emergency fund.<\/p>\n
Join Instamojo’s WhatsApp community to connect to like-minded small eCommerce business owners. Discuss and brainstorm with other entrepreneurs and amplify your strengths.\u00a0<\/strong><\/p>\n
Join WhatsApp Community<\/a><\/p>\n<\/blockquote>\n
Step 2: Saving for an emergency fund for eCommerce businesses<\/strong><\/h3>\n
1. Tracking income and expenses<\/strong><\/h4>\n
To have an adequate emergency fund, and to constantly increase it, you also need to be aware of your businesses expenses. Tracking the incomes and expenses of your small business should always be a priority to ensure your small business builds financial resilience. Tracking your income tells you if you can slowly increase the funds you are keeping aside every month.<\/p>\n
You should also consistently track your expenses like money spent on utilities, investments, bills, purchases, advertising, legal fees etc. It can also help you understand all cash outflows, making it easier for you to implement cost-cutting strategies.<\/p><\/blockquote>\n
Managing and observing your business operations on a daily basis helps you make informed choices about your savings, investments and your emergency fund.<\/p>\n
2. Diversification of supply chain<\/strong><\/h4>\n
It is important for your small business to minimise its risks. This also builds the financial resilience of your small online business. Some ways to build this resilience is by diversifying your eCommerce business’s supply chain. So that, even if one fails, you have the option of turning to another.<\/p>\n
You need to ensure that you have diversified your:<\/p>\n
- \n
- Courier and shipping service providers<\/li>\n
- Warehousing<\/li>\n
- Sales channels<\/li>\n
- Fulfilment companies<\/li>\n<\/ul>\n
Also read:\u00a05 Affordable Shipping Services in India for Online Businesses<\/a><\/strong><\/p><\/blockquote>\n
3. Discounts and sales\u00a0<\/strong><\/h4>\n
To ensure higher savings, you also need to ensure your cash flow keeps increasing. There are several ways you can boost profits for your eCommerce business.<\/p>\n
- \n
- Run promotions on your online store<\/li>\n
- Offer exclusive discounts<\/li>\n
- Try early bird offers for digital events<\/li>\n
- Hold festive sales<\/li>\n<\/ol>\n
Read these blogs to know more about how to increase your sales using discounts:\u00a0<\/strong><\/p>\n
- \n
- How to use discount pricing strategies to make more sales<\/a><\/li>\n
- How to prepare your online business for the festive season<\/a><\/li>\n<\/ul>\n
4. Technology-based solutions<\/strong><\/h4>\n
Small online eCommerce stores should not shy away from leveraging technology-based solutions. If you are finding it hard to keep track of your income and expenses, there are several apps that can do it for you. From inventory management<\/a><\/strong> to managing finances, there are hundreds of apps out there that can help you streamline your business operations.<\/p>\n
Financial technology or Fintech apps have recently gained a lot of popularity in India. From easy access to credit to managing existing money, these apps can be a blessing.\u00a0<\/span><\/p>\n
- How to prepare your online business for the festive season<\/a><\/li>\n<\/ul>\n
- How to use discount pricing strategies to make more sales<\/a><\/li>\n