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The average person dreads (or detests) uncertainty. We prefer to be in full charge of our affairs, without some unknown variable disrupting our plans. But life isn’t always straightforward; things spring up without our predicting them, and force us to change the paths we’re taking.

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This is true about business as it is for virtually every other aspect of our lives. We draw up budgets that will supposedly cover our business expenses for a considerable length of time. However, such plans– and the resources we devote to executing them –will sometimes turn out to be insufficient, because something unexpected pops up in the course of our work.

Unforeseen expenses can be a big headache for business owners and managers. Whether it’s an equipment failure or increased supplier costs, higher rent or damaged inventory, they can strain your finances, and catch you unprepared for the sacrifices you’ll have to make to deal with them.

If you’re going to successfully tackle these sorts of expenses, you’ll need to make room for them beforehand. This article explains six steps you can take to achieve this.

Examine Your Finances

This comes first. Before you create a strategy for dealing with unforeseen financial demands, you have to be sure that your finances are in the right shape to cover them whenever they arise. Examine your financial records to see whether or not your business is in a sound position. Some unplanned-for expenses may be barely worth worrying about. Others could place a big burden on your enterprise. You want to be sure that you’re in a good enough state to take care of extra costs whether great or little.

List Possible Unexpected Expenses

While a small number of unforeseen expenses are unique and random enough to totally escape your ability to predict them, you could actually list a majority of probable sources of ‘unexpected’ costs. For example, you might anticipate that your rent may increase if there’s been a general rise in the price of products and services across the economy. By listing likely sources of irregular costs, you’ll get a good night of where such costs could come from and set up a plan to deal with them if they do materialize.

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Build Up Emergency Funds

You might want to reinvest the profits you make. And that’s certainly not a bad idea. But you should also think about setting aside emergency funds. Keep a percentage of your profits for this purpose. If you do this consistently over time, you’ll build up a reserve that you can use when the unplanned-for expenses come calling. It’s up to you to decide what percentage of your funds you should put away. Just be sure that you’re deducting it after accounting for your revenues and profits.

Cut Unnecessary Costs

If you’ve had a good look through your financial statements, you’ll probably have noted certain expenses that your business can do without (you should examine the statements with this in mind). Do what you can to eliminate those costs, so you can free up resources that you can reallocate to pressing needs. This move should not reduce the quality of your operations, products, or services. If there’s a risk that it will, it’s possible that you’re actually cutting out items that are crucial to your business (something you shouldn’t do).

Insure Key Assets

Some expenses arise due to damage to (or loss of) property. For example, your business vehicle may get wrecked in an accident; your office could be damaged by fire, or your inventory could be stolen or get lost to flooding. If these things were insured beforehand, you’ll be able to restore them at a much lower cost to your business than if they weren’t insured.

Follow Up On Outstanding Customer Payments

Maybe you have funds held with customers who haven’t paid you for your products or services. You will need those funds (or at least some of them) when a significant but unplanned expense crops up. Ideally, you’ll want to follow up with such customers when you aren’t under a lot of pressure to settle expenses yourself. Whatever the case is, try to get customers who owe you to pay up on time.

Final Words

Depending on their size and urgency, unexpected expenses may constitute a serious drain on your business’s resources. They don’t have to. By planning ahead and taking the steps we’ve shared here, you can protect your business from the trouble that often comes with unplanned costs.

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This article was first published on 22nd February 2022

ikenna-nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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