Self-Employed 911 Fund

[Wings]

Hello all.  I've been having an ongoing discussion with my biz partner about our emergency fund, both personal and for the business.  I've been a solo biz owner for years and just formed a partnership with a friend to expand the business, which is going well.  She has come from the world of "jobs" with sick pay and all the stuff (good/bad/otherwise) that comes with working for The Man.  I'd rather have my freedom than the illusion of security a 9-5 provides, but as we merge we are pondering some questions.

I see a lot on the forum about how people find their comfort level with an emergency fund, but almost all talk about relying on sick pay/time off they may have accrued for the short term, until the disability insurance kicks in.  I have an HSA plan with a $2500 deductible, but after 2 surgeries and a major accident, I didn't work for quite some time. They said I might never walk again, and I'm back to hiking and climbing, so I'm quite happy about that.  However, it pretty much wiped out all my savings, and now I'm trying to rebuild at age 45.   I'm also more leery of not having at least decent insurance.  I have had the good fortune to recover from both and take 6 months off to take care of my mom in hospice, but when all was said an done, it left me with very little savings and I didn't contribute to retirement for almost 3 years.

So, a Q for the self-employed who are not totally financially independent--
Our business involves doing a lot of grief/trauma work with people who come to us, but we also lead wilderness retreats into the desert and other places.  Judgement free zone warning-- I drive about 46k miles a year for work, which I do about 9 months out of the year and love, so it feels like an investment in the business to have a car payment, but it is my only debt.  Other than basic living expenses, which are pretty minimal, and business expenses, taxes, etc., I have no other payments or debt.  House is gone, student loans paid off, no other debt and I do what I love everyday.  I live pretty well, but don't spend a lot on extraneous stuff.  I haven't done the math, but I'm back to saving probably 30-40% of my income, and when we get this new part of the business up and running, I'll be able to save more.  So some of the "spending" is actually just money going back into the business.

So, all of this to say-- What do you who are self employed do about an emergency fund?  Do you keep a 911 fund for the business and for personal, beyond what is needed for monthly cash flow?  Or do you just keep some cash to float yourself if the business needs some extra cash that month and you don't take a "paycheck?"    We are an LLC, so in the eyes of the IRS, it's the same as a sole proprietor.  So as individuals, we each have our own bills, bank accounts and so on.  But we are trying to decide how much to keep in business savings, basically earning no interest, vs. each just having our own stash.  Since most of our biz is dependent on both of us, if one of us gets hurt or really sick, it impacts the other in terms of not just work, but take home pay.

So we are trying to decide if it makes more sense to keep more in the business savings, or if we split that up and have our own funds, or try to find the balance in the middle.  We lean toward finding the balance in the middle, but haven't quite figured out the best way to do that and not just have several thousand dollars sitting in a .1% savings account.  We are both pretty aligned in terms of values re: the money, so it's not as if either of us would have to float the biz because the other has suddenly run off to Vegas in a new BMW or something. 

So-- do you who own small businesses do a long term disability insurance and keep enough in your business accounts to cover not just bills, but paychecks until that would kick in, or do you let each partner handle it from their own funds, or do something in between?
We cover each other on life insurance, enough to cover a year for the other, so that feels good/right. 
But if any of you have experience with this part of it, I'd love to hear how others do it, I'd love to hear your experience.

Thanks in advance,
Terri

[protostache]

Small business owner here, also an LLC but taxed as an s-corp, which means I have to pay myself a regular salary. I keep two months of salary and expenses in my business accounts, split between a checking an a money market so I earn at least a little interest on part of it. On top of that, my wife and I have enough emergency fund for five months of current spending (not extravagant but higher than MMM-normal).

90% of my business income comes from software consulting and the other 10% is residuals from a book I wrote a few years ago. I'm working on flipping that ratio, but right now if I were to have to stop consulting we would have about ten months due to the book income, my wife's job, and other cash we have.

Small businesses can be risky, which is why we have so much cash. If I were to go back to full time work, we would probably move some of that cash into more profitable investments.

[BlueHouse]

I'm also a small business owner (s-corp).  I keep very little in business checking - just enough to pay the bills each month.  If I lose a client, I stop collecting a paycheck  and live off savings. (S-corp owners have to pay themselves a reasonable amount, but it doesn't have to be regular amounts each month or anything). 
I keep too much cash in my personal e-fund (over $100k) because my business could dry up at any moment and I am completely paranoid about it. 

I have no employees except myself right now, and if my business dried up, I'd go get a job.  That's really my biggest risk.  Now that you have a partner, you need to focus on protecting each other, and it sounds as if that's what you're doing. 

I would think the important things would be:
1. Disability Insurance
2.  Survivorship Insurance (or at least a plan for buying out any heirs if one of you dies)
3.  Possibly look into factoring if business cash flow is a problem.  (but they're like loan sharks)

Glad you're back on your feet after your recent disability.  any injury that keeps you from doing your job is devastating to a small business owner.  so good luck

[Wings]

Thanks so much for taking the time to reply.
We seem to be aligned with what you 2 are saying as well...it's good to talk to other self-employed people.  I just feel a lot more comfortable having a Cash Stash and knowing it's there, even if it's not a "good investment," it feels like the security that we both need for things to ebb and flow.
I appreciate the responses, thanks again!
T