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Ask Dave

Business Emergency Fund?

Brad's business emergency fund, or capital reserve, should hold anywhere from three to six month's worth of expenses.

QUESTION: Brad wants to know how much he should have in his business’s emergency fund.

ANSWER: An emergency fund in a business is called a capital reserve.  This capital reserve should also be three to six month’s worth of expenses that can be used for payroll, rent, etc. 

The other thing you can use your reserve for is opportunity.  For example, buying out the competitor, buying into other marketing and investing opportunities, purchasing office supplies and other items at a huge discount.

Having this perspective on capital reserve gives you incentive to have adequate savings so you can invest back into your company.