My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

Ask Entrepreneur

The 3-Step Emergency Plan Every Entrepreneur Needs

The 3-Step Emergency Plan Every Entrepreneur Needs
Image credit: Dan Saelinger
Magazine Contributor
2 min read
Opinions expressed by Entrepreneur contributors are their own.

This story appears in the June 2016 issue of Entrepreneur. Subscribe »

If you’re like pretty much every business owner I’ve ever met, you can’t stomach the idea of abandoning your business. But if an accident or illness knocks you off your feet, and you’re not prepared for it, you can go from six-figure monthly revenues to squat overnight. And yet, you’ll still need to pay your mortgage, business vendors and payroll. Can you do it? If you don’t have a backup plan, turn the page -- you’ll find the three financial steps you should take today to protect you tomorrow.

 

The 3-Step Emergency Plan Every Entrepreneur Needs

Step #1 Secure access to cash

Step #1 Secure access to cash

For years, financial advisers have recommended that everyone stash enough cash to cover at least six months of personal and business operating expenses for emergencies. Yeah, right. To most people, that’s an obscene amount of money to have parked in a near-zero-interest bank account. A better solution: Open a line of credit (both personal and business) that can supplement a more modest emergency fund amount of about two to three months’ expenses.

The 3-Step Emergency Plan Every Entrepreneur Needs

Step #2 Insure your paycheck

Step #2 Insure your paycheck

If you don’t have disability insurance, get it. Some policies guarantee a percentage of your income -- typically up to 60 percent -- while others cover your business’s overhead so you can pay bills (which, conveniently, includes your full salary). But make sure you shop around and read the fine print to uncover any loopholes. A client of mine learned this the hard way, when she found herself in the hospital after a car knocked her off her bike. The insurance company paid nothing because it determined that her business did not suffer a “significant enough” drop in revenue while she was debilitated. She nearly went bankrupt.

 

The 3-Step Emergency Plan Every Entrepreneur Needs

Step #3 Get down to basics

Step #3 Get down to basics

Whether you end up relying on a lump sum of cash or a reduced income stream, one thing is for sure: You’ll need to live lean when you’re out of commission. The more time you prepare for the worst by limiting your personal overhead, the easier it’ll be to weather adversity. Personally, I never let my fixed expenses account for more than 45 percent of my income after taxes.

Add to Queue
  • The 3-Step Emergency Plan Every Entrepreneur Needs
  • 1. Step #1 Secure access to cash
  • 2. Step #2 Insure your paycheck
  • 3. Step #3 Get down to basics
Next Slide