logo

The information on this website is promotional

What is a financial airbag?

This is an amount equal to the company’s main expenses for several months, which must be postponed and not spent until force majeure occurs. If such a situation arises, then it is this reserve that will give the business a chance to survive and not close.

When is an airbag useful

Decrease in demand

Sudden increase in rent

Equipment breakdowns

Supply problems

Legal difficulties

Lack of funds to pay salaries

It is necessary to determine the size of the financial reserve

Divide expenses into fixed and variable.

Variable costs depend on the volume of production and sales. These include costs for consumables, acquiring interest, and payment for transport services. To calculate, take fixed costs as a basis: they will remain the same even if production and sales volumes decrease.

Fixed expenses are:

  • insurance premiums
  • employee salaries
  • rent and utility payments
  • depreciation deductions
  • payment for services of third party contractors

How to create a financial airbag

Create a financial safety net for your business through regular deductions from profits. There are two options: pay a fixed percentage, for example 5% every month or more, depending on the situation. Analyze your income and expenses:

  • analyze the services you use
  • study the book of income and expenses accounting
  • think about what else you can save on
  • determine which expenses can be carried forward to the future
  • sell company property that you are not using

Direct the freed money to form a financial reserve.

Predicting global risks such as natural disasters or political changes is difficult. However, it is important to consider how you will act if your sales do not reach your target or your production volumes decrease.
Only highly liquid assets are suitable for storing a financial cushion - money in deposits, accounts and safes. This way they will always be available to you. Selling other assets, such as stocks and bonds, will take time. The best option is a bank deposit: interest will accrue on your savings, and the deposit insurance system will save money if the bank is deprived of its license.
It is usually recommended to have a financial cushion in an amount sufficient to last 3-4 months, and in extreme cases - from six months to a year. It is unlikely that the company will remain idle for a longer period, and it is better to invest free money in development and expansion.

Manage your company's finances wisely

Having a security system in place is an important element to ensure the survival of a business.


Subscribe to our website and you will learn how to get on the path to financial stability.

Cookies

We use cookies to improve website performance and user experience. If you continue to browse the site, you agree to the use of cookies. You can disable cookies at any time.