Preparing for Unexpected Expenses
We know how difficult it is to prepare for the unexpected, especially in these unprecedented times. However, there are some things which you might consider doing to reduce the burden of your worries.
Budgeting might feel like an unnecessary, long and arduous task. However, it can provide great insight into any possible cash shortages in both the short and long term.
When creating your budget it is beneficial to ‘create a line’ which will cover unexpected expenses; and a specific % of revenue each month is predicted for this. This way if something unexpected happens you have more room for covering the unexpected expense due to already forecasting for it.
This is why it is really important that your budget is precise and considers all possible expenses. Even an ad hoc expense, which is not on a monthly, quarterly or annual basis. For example; a need to purchase a new machine due to an old machine becoming obsolete (which can be forecasted in advance).
2. Emergency Fund
If possible it is a good idea to hold emergency funds called ‘capital reserves’ which can be utilised in unexpected situations.
3. Probability and Sensitivity
It is a good idea to create a probability and sensitivity analysis of something unexpected happening so that your company becomes aware of the possibilities and plans accordingly for the risk of something unexpected happening.
High probability. High impact of something happening – try to avoid e.g. move from specific business activities
High probability. Low impact of something happening – try to reduce the probability from happening e.g. try to plan in advance
Low probability. High impact of something happening – try to transfer to someone else (so it’s not your responsibility) e.g. insurance
Low probability. Low impact of something happening – least effort
As mentioned above, insurance will help you in planning and being prepared for the unexpected. It’s easier to pay monthly fees, just in case something happens, rather than deal with the big bill later on yourself.
5. High Credit Score
If an unexpected situation happens and your company struggles to bear the costs of it. It might be worth looking for a new capital which will help in the immediate situation.
A company with a high credit score will have higher chances of receiving further loans at attractive interest rates and better terms.
Some of the factors considered when classifying Credit score is financial flexibility, industry average, earnings protection, and management work.
6. Ask for Help
If your company becomes insolvent (unable to pay the debt) due to an unexpected situation, it might be worth using an insolvency advisor which might help in rescuing your company from debt, by finding different possible solutions for you e.g. reorganisation and reconstruction.
We know these are difficult times so please do get in touch if we can help you, or if you need would like to discuss this further.
Mobile: 07541 644 536 / 01306 627 837