Storm Watch: Creating a Rainy-day Fund

Posted By Madilyn Moeller, Monday, July 3, 2023

Savings and piggy bank

By Jessica Nunn, Maven Financial Partners

“I sure am glad I wasn’t prepared,” said no one, ever—especially small business owners.

As a small business owner, you understand the importance of planning for the unexpected. Just as individuals have emergency funds to handle unforeseen expenses, it's crucial for small businesses to maintain enough working capital to carry them through challenges. Whether your practice is experiencing a slow period or you have a provider on maternity leave or an extended vacation, disruptions in cash flow will happen. Your business must be healthy enough to make it through the disruption without having to resort to drastic measures—such as “payday” loans, layoffs or closures—to survive. Enter the concept of a “rainy-day fund”. A rainy-day fund acts as a financial safety net, providing your business with stability during challenging times.

Why small businesses need rainy-day funds

Running a small business often involves navigating through periods of uncertainty and volatility. Economic downturns, unexpected expenses, supply chain disruptions or sudden decreases in demand can pose significant challenges to your medical spa. Having a rainy-day fund allows your business to weather whatever comes your way. Here are some reasons why a rainy-day fund is essential for your small business:

  1. Emergency expenses: Unforeseen expenses—such as equipment repairs, technology failures or legal issues—can disrupt your business. Having a reserve fund ensures that you can cover these unexpected costs without derailing your operations.
  2. Economic downturns: During economic downturns, businesses often experience reduced revenue that comes from sudden shifts in consumer behavior. Having a financial buffer allows you to adapt and pivot your business strategies without compromising its viability.
  3. Cash flow challenges: A disruption in client volume, seasonality or unforeseen interruptions in your supply chain can impact your cash flow. A rainy-day fund can help you sustain your business during lean periods and avoid layoffs or drastic cost-cutting measures.

How much should be in a rainy-day fund?

As with most things, the size of a rainy-day fund depends on your needs. When a business has experienced steady sales for a long time, has an established customer base, has multiple providers and offers a wide variety of services, less working capital (a finance term for a “rainy-day fund”) might be required. Cash flow for these businesses is typically strong, steady and predictable, so bouncing back from disruption might occur faster.

A younger, rapidly growing business with less predictability requires more reserves. Risks to revenue are larger when there are fewer providers. The impact of an extended vacation, health issue or maternity leave is greater. A disruption with a specific vendor might have a larger impact if only one or two services are offered. Finally, cash flow with younger businesses is simply more volatile. Predicting natural seasonality or local demand is more difficult for a new business.

Additionally, every business owner has a different tolerance for risk and stress. Some business owners sleep better at night when they have an amount equivalent to a year’s worth of expenses hoarded away, while others sleep great with just 30 days’ worth.

At a minimum, you should have at least two to three months’ worth of expenses set aside for emergencies. If your practice is younger and you personally like being as frugal as possible, work up to six to 12 months of savings or capital.

Remember, there is an opportunity cost of working capital to consider. Twelve months’ worth of expenses locked up in your practice’s checking or savings account is a large sum of money that isn’t otherwise working for you. You’re forgoing investing in new service offerings or devices, investing in the stock market or even providing a nice return to your investor(s) by having a large rainy-day fund. Maintaining an appropriate balance requires considering all these factors and regularly revisiting it.

Growing a Rainy-day Fund

Now that we’ve convinced you of the importance of a rainy-day fund, let's delve into some ideas to get you started:

  1. Assess your finances: Begin by evaluating your business's current financial situation. Calculate your monthly expenses, including overhead costs, salaries and other operational expenses. This assessment will help you determine an appropriate savings target for your rainy-day fund.
  2. Establish a target: Consider your specific circumstances, your monthly expenses, and your risk tolerance, then define your ideal rainy-day fund balance.
  3. Create a separate account: Open a separate bank account solely dedicated to your rainy-day fund. This separation ensures that the funds are not commingled with your day-to-day business accounts and helps maintain financial discipline.
  4. Automate savings: Set up automatic transfers from your business account to the rainy-day fund account. Automating savings ensures consistency and eliminates the temptation to divert funds elsewhere.
  5. Cut unnecessary expenses: Review your business expenses to identify areas where you can make cuts or optimize costs. Reducing discretionary spending allows you to save more for your rainy-day fund without affecting the core operations of your business.
  6. Generate additional revenue streams: Explore ways to diversify your income sources. This could involve offering new products or services, upselling to existing customers, or expanding into new markets. The additional revenue generated can contribute to your rainy-day fund.
  7. Continually monitor and reassess: Regularly review and adjust your savings plan as your business evolves. Revisit your savings goals, adjust contributions if needed, and reassess the adequacy of your rainy-day fund based on changes in your business landscape.

Other Considerations

With rising interest rates, Maven is working closely with clients to make the most of their savings. Consider a high interest money market account. At the current time, its clients are earning up to 4% on their balances! Others even choose to invest the money in the market, where returns might be greater. Diversifying between banks and account types can also protect against banking failures, as mentioned here.

Lines of credit can be used to supplement or complement your rainy-day fund. Access to a line of credit provides additional capital to a business when needed. Maven recommends medical spas work closely with their banker to determine an appropriate line of credit for their business.

Access to personal funds can also provide additional working capital. As a small business owner, you know you’re the last to be paid. It’s important to maintain a personal rainy-day fund because your income is not guaranteed. Having ample reserves at home that can be contributed or lent to the business during leaner times is an additional option that could be considered for working capital.

In the unpredictable world of small business, creating a rainy-day fund is a vital step toward financial stability and resilience. By setting aside funds to handle unexpected expenses, economic downturns or cash flow challenges, you can ensure the long-term viability of your business. While establishing a rainy-day fund requires discipline and careful planning, the peace of mind it provides is invaluable. Remember to regularly review and update your savings plan, adapting it to the changing needs of your business. Embrace the mindset of preparedness and protect your small business from the storms that lie ahead. With a well-funded rainy-day fund, you'll be better equipped to navigate uncertain times and emerge stronger on the other side.

For a free financial assessment and ideas on establishing your own rainy-day fund, please reach out to Maven Financial Partners at

Maven Financial Partners acts as an aesthetics CFO. It helps aesthetics businesses understand their financials and make a plan for their business. Maven budgets income and expenses, sets provider goals, measures performance and forecasts growth. It wants to connect with business owners who want to become more profitable.

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