Question

A household functions like a small business. In both the household and business settings, the importance of stable cash flow cannot be emphasized enough. Households and businesses must maintain good cash flow to meet their continued obligations should something happen or if there is an economic downturn. Planning for both short- and long-term cash needs is important to both the household entity and the business entity.

In your opinion, what are three factors that should determine how much money should be set aside in an “emergency fund” for both a household and a business? (6 points)

Answer 1

The three factors in my opinion should determine how much money should be kept aside as an emergency funds for business and house hold are as follows

1.Natural Disasters

Business and household both should keep money aside for natural disasters because most of the time the insurance doesnt always cover th whole losses and even if they do they will take some time so for keeping the household and business running you need some money. An emergency fund at that time could help you, yours family as well as those of your employees family. Therefore a fund for natural disaster is a must for both the household as well as for business.

2. Major repairs

As running a business you face a lot of difficulty while handling machinery there are lots of break downs and some times the break down can be of significant value therefore business owners should make sure that they have funds for major repairs so that there business dosent suffers and the same goes for the household nowdays condos are susceptible to lots of issues and some times the water heaters is old or there may be any kind of emergency releating to repairs for the house so they should always keep a major repairs budget.

3. Medical Bills/ Accidents budget

Business should always make sure that they have a lumpsum amount in the accidents budget when the employees are regularly handling huge machinery and some times they may not be covered by your insuraance so as business you should make sure that they have a good amount in Accident Budget. Some times the accidents caused on work or any illness is not covered by the employer or the insurance agency so you sholuld make sure that you have a good money saved for illlness or accidents for the medicals bills.