Asked by Anonymous
Asked 3w ago
What would be a good percentage of your backers' money to set aside as an emergency fund for your startup and why?
Top Contributor (Nov)
For companies, you will need to have a well-defined business model and plan first. From there, we will have to decide on the risk that your company needs to take in order to earn the projected return for the next 3 to 5 years. All these requires refined calculation that are often more easy said than done. Therefore, spend quality time to complete all these first.
Once the business model is up, have at least 9 to 12 months of liquidity in your business account. This ensures that you have sufficient funds to tide over hiccups or to tune up and expand your business when required.
As for investor's liquidity, it will depend on the agreement with your investors. When in doubt, always have more liquidity then you feel you will need. This ensures that your business is not over-leveraged (until it is a well-established set-up).
Additionally, it will be worthy to have your own personal emergency fund set up as well. In most cases, have at least 3 to 6 months of your personal monthly expenses that is for personal use. This is on the assumption that you are properly insured and are covered on the right areas.
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It is best that you set aside at minimum of 6 months emergency funds and ensure that you have sufficient savings to pay your monthly expenses when considering the amount to put into the start up company.
This also depends on the nature of business you are looking at to decide the capital needed.