An emergency fund is money that’s set aside specifically to cover unplanned, urgent, or important expenses that arise unexpectedly. These can include medical emergencies, sudden job loss, urgent home or car repairs, or other unforeseen financial setbacks.
For businesses it’s a reserve of cash specifically set aside to manage unexpected, urgent, or critical expenses that can disrupt operations. These may include sudden revenue shortfalls, emergency repairs, supply chain disruptions, legal issues, or other unforeseen financial challenges. Having a dedicated emergency fund acts as a financial buffer, allowing businesses to navigate crises without resorting to high-interest loans, cutting staff, or halting operations. Financial advisors often recommend setting aside three to six months’ worth of operating expenses in a separate, easily accessible account. Establishing and maintaining this fund is a vital component of sound business financial planning, offering stability, continuity, and peace of mind in times of uncertainty.