When starting a business or continuing to run one after years in practice, it is really important to have a reserve or “rainy day fund” for the ups and downs of business revenue. There are always unexpected costs or delays in insurance processes that can affect the stress of owner and team if money isn’t there for day to day needed functions. Last thing you want to be is behind being employees, can’t buy new inventory, or even pay yourself for working so hard during these tough times.
When starting a business, this budget is called overhead expenses while things are getting going. Most experts recommend two years of operating expenses in a fund when starting any business. Operating expenses are day to day bills, marketing, restocking supplies, and staff wages that need to be paid each month while income from insurance and patient payments will slowly start coming into your business.
Having a reserve of around six months of business overhead expense budget set aside is a MUST once established. If your midwife practice needs $10,000 each month to buy supplies, pay staff, pay bills like utilities, taxes, and educating staff, put aside $60,000 in a savings account that is only touched if no other option is available. If money is used from this pool, as soon as income starts flowing well again, make top priority to replace the reserve account.
Emergency accounts are great to peace of mind and extra funds in case there is a need like down payment for purchasing birth center, insurance reimbursement is slow to process and funds are needed for operating expenses, or expansion of business with additional staff. Reserves of cash flow are just as important for personal life as in business decision making.
In a situation where your business has been going for a long time and wanting to create this account without a large amount of extra funds sitting around. Get into a habit of an auto-pay emergency account getting monthly deposits from your major business operating account. Look at it like another business tax that is a must to be paid no matter what. When things are automatic and small amounts at a time, it doesn’t feel like such a hard task to accomplish. Decide the amount based on your size of the business. I typically tell clients save 10% of gross income into a rainy day fund. If you want your midwife business to be successful long term with less stress and anxiety, I strongly encourage budgeting this account into your loan request and financial accounting.