How can you create a realistic and effective emergency budget for your small business?

I would recommend to start by focusing on "fixed costs", those costs that will continue to accrue month after month despite the emergency.

Efectivamente, como dice Jaime Joel, además de identificar los gastos esenciales también sería recomendable separar entre gastos fijos y gastos variables.

Consider the potential repercussions of cancelling certain services, subscriptions or supplier contracts. In some cases, the penalties for early cancellation might outweigh potential savings.

I would strongly advocate first figuring out what your cash flow position is in the year to date period. This will give you enormous insight into where cash is leaking out or currently trapped so that you can focus 95% of your time on increasing cash or unlocking trapped cash. As someone who has been working with businesses to improve cash flow for more than 25 years, this is by far the best use of your time. The problem I see with forecasting is that if you are not a financial expert, you can make mistakes and lose time running too many scenarios instead of taking action. Cash flow is a certainty. Cash position forecasts are just estimates and they are highly subjective and can be dead wrong.

Cash is king and this should be your bottomline and main KPI to monitor during an emergency. As a best practice, businesses should have a cash reserve or emergency fund that would allow them to cover between 3 to 6 months of operating expenses.

Here is the thing about OPM - using other people's money to run your business. While in theory, this makes sense and is a good thing to explore/pursue, the truth is, if you are not currently managing your own money wisely, it is going to be very difficult to negotiate loans, grants, or equity from others. You will only be able to negotiate a deal that is good for you if you can prove that you know how to manage your own money wisely first.

Lines of credit can be a valuable tool for liquidity during an emergency or crisis event. In the case of disruption due to natural disasters, sometimes nonprofits and government agencies extend financial assistance in the forms of grants or other incentives.

Otra opción para sortear una situación de poca liquidez es negociar con clientes y proveedores. En el caso de clientes tratar de que hagan un pronto pago (quizá ofreciendo algún descuento) y en el caso de proveedores negociando un pago más tardío o en varios plazos.

After you've identified all your expenses, your income and Cash Flow, budgeting for emergency should automatically be in the extended cash flow. Meaning there should always be a consistent deposit to the emergency fund. Usually companies set up overdraft protection with their financial institution to cover these unexpected instances.

A good rule of thumb to work towards is 5-6 months of emergency funding. When COVID hit, all of the research globally highlighted the worst kept secret in business - that 95% of businesses had less than 28 days worth of cash in reserve to weather a crisis. And that statistic included businesses of all sizes - not just SMEs. What this meant is that without government bail outs, most businesses would have gone under in about a month. More than 50% only had 15 days worth of cash reserves. If your current emergency cash reserves are less than what is needed to survive at least 5 months of downturn, I would highly recommend making a plan to build those up first. Anything less than 5 months is unsafe.

Track your income and expenses but gear your budget planning efforts towards coming out of the emergency, if possible. Realistically assess how long can you sustain your operations in "emergency mode" and be sure to be proactive in your solutions.