Learning to Plan for a Rainy Day

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When you run your own business, it is often a case of if you don't work then you don't get paid, which can be a bit of a shock to the system and something that you haven't thought about planning for but you should.

The first step is keeping your accounting records up to date.  I know this isn't exciting or glamorous, but it is necessary! If you don't know what money is owed to you or you owe to others you don't know what cash you do (or don't) have to play with.

The second step is having a separate business savings account as well as business current account (here’s my blog about business bank accounts: https://simplified-accounting.co.uk/blog/business-bank-accounts) so that the money you squirrel away can be out of sight which will hopefully stop you spending it.

Then it's time to look at what you are spending and where, is it all needed and necessary? Tightening the business purse strings isn't necessarily the most exciting bit of planning you will ever do but if you can save £50 a month that can then go into your rainy-day fund, as in all these things, something is better than nothing. (here’s my blog about finding cash within your business: https://simplified-accounting.co.uk/blog/finding-cash)

Now you have the outgoings reviewed, look at what profit you are making each monthly. Once you have taken what you need out and set aside the cash for tax what is left? Start putting this into the rainy-day fund too - again if you can find another £50 that is £100 a month being set aside.  OK - it doesn't sound much but it all helps. 

If you need £1,000 a month to cover costs in the business and £1,000 a month for you that is £2,000 a month (ignoring tax to keep the math’s easier).  Call it 4 weeks in a month that is £500 a week or £100 a day.  If you were ill for a day or two would you be overly worried about money? Generally not.  But if you were for a week then yes, you might be. So, if 2 days didn't worry you then of that week ill it is 3 days income you would be concerned over or £300 and that would take you 3 months to set aside.

Obviously there is also the bigger rainy-day picture of trying to save several months income, but let’s learn to walk before we learn to run eh?!

Rachael Savage