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Building an Emergency Fund For Your Real Estate Business

Aug 20, 2020 12:00:00 AM

As is the case with so many industries in 2020, it’s been a tricky year for real estate. Housing markets slowed down along with the broader economy in the spring, and the uncertainty that hangs over the economic recovery (not to mention the ongoing public health crisis) makes it difficult to know when things might return to normal.

The hope is that as society gradually gets back up to speed, housing business will pick up accordingly. Our take on what happens next in the housing market put forth a fairly optimistic outlook in this regard, pointing out that showings are actually on pace with where they were in 2019. Though we also acknowledged that there are factors that will likely prevent a full recovery in the short term.

All in all, these conditions are causing real estate businesses to make a lot of adjustments. One that we’d like to focus on here is the introduction of emergency funds. If 2020 has taught us anything, it’s that having a little bit of extra cash on hand can be life-saving for a business when unforeseen obstacles emerge. So, whether you operate a one-person real estate operation or you have a full business of your own, here are some of our tips for how to build up an emergency fund.

Build Your Fund into Your Business Plan

It’s easy to approach an emergency fund as something extra — or even a personal endeavor you undertake alongside your business. But you’ll likely be more consistent about creating a reliable fund if you make it a part of your business plan. Improper planning is one of the main reasons small companies fail, and a lot of that improper planning tends to come down to poor or unclear management of finances. So, even if you’re building a fund very gradually, or using some of your personal income to do so, you might want to consider formalizing the progress.

This will make it easier for you to factor an emergency fund into your broader efforts, and will also help to avoid any confusion about where funds are being directed. It’s generally best to be transparent about these matters.

Take Advantage of Profitable Quarters

Many businesses take advantage of profitable quarters by reinvesting their earnings into expanding or improving their operations. You might look into setting up a website, boosting your property ads, relocating to a better space, or hiring new employees, if you haven’t already done these. These are all within your right as a flourishing real estate business. But before getting swept up in costly upgrades, consider directing some of your extra earnings into your emergency fund. Profitable quarters are the perfect opportunity to beef up that savings account, which will act as your business’ safety net in economically challenging times.

The thing about financial emergencies is that they are unexpected and unpredictable, and a recession like the one the country is currently experiencing is the perfect example. An article on the effects of a recession lists high unemployment rates and reduced personal incomes as some of the main consequences. Because of this, shopping for real estate will be the last thing on someone’s mind when they are struggling to pay bills or feed their families. While you may not be personally affected, your business will definitely feel the impact of it. So in times of healthy returns, bolster your business’ financial security by prioritizing emergency fund savings.

Set the Fund Up to Earn Interest

If you want a business emergency fund to be as robust as possible, it makes sense to start it where it can earn interest. This doesn’t mean you’ll be investing it — but rather, setting it aside in a savings account or a similar arrangement that allows it to appreciate over time. Even if the interest is fairly low, and the gains are marginal, you’ll ultimately get more out of the fund than you would if you set the money aside another way.

Look to Cut Expenses

A personal loan can make for a great way to put a respectable sum into your fund just as you’re getting it set up. But if the idea is to gradually contribute more money to your real estate business’s emergency fund, you’ll need to figure out where that money is coming from. The best way to do this might be to look for some expenses you can cut.

This is always a difficult process, but you can start by considering some areas in which small businesses often spend too much. In this vein, there are a number of helpful suggestions such as looking at insurance options, evaluating contracts, considering staff roles and supply costs, etc. Basically, use this as a reason to consider the spending efficiency within your business. It’s a good thing to do now and then anyway, and in this case you may be able to cut a few marginal costs and funnel the money instead into an emergency fund.

Not unlike paying insurance, putting money away in an emergency fund isn’t always the most appealing idea. But as we’ve seen in 2020, a crisis can come up suddenly, and having extra cash on hand when it does can be the difference between your real estate business succeeding or failing. It’s certainly something to think about, and we hope that these tips can get you thinking about how to set up a fund for your company.

Written by Gigi Mitchell for realtrends.com

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