COVID-19 has made it clear that an emergency fund, or a reserve of money set aside as a financial safety net, is no longer a luxury but a now-more-than-ever necessity. And yet, while the standard advice is for businesses to have enough saved to cover at least three months of operations, a 2015 study from the JP Morgan Chase Institute showed that half of small businesses only have enough cash to last less than a month.
Back in March, while many studio owners were likely wishing they had an emergency fund to help them survive the pandemic, Jessica Zamarripa was deciding not to touch the fund she'd spent the past nine years—the lifetime of her Laredo School of Contemporary Dance in Laredo, Texas—building. Her reasoning was simple: Emergency funds are for emergencies, and while COVID-19 has been a challenge for her studio, it has not warranted depleting that fund.
"Plan for the future, no matter how much the business is thriving."
"We've always been cautious about how we spend money," says Zamarripa. "My husband is a big saver. He's always managed our personal and business finances. He's taught me that it's important to plan for the future, no matter how much the business is thriving and how profitable it is."
That financial outlook shaped how Zamarripa founded her studio in 2011: She invested $10,000 from her and her husband's personal savings into a 1,500-square-foot rental space that she outfitted with mirrors and sprung marley flooring, and avoided having to take out a loan. Zamarripa's goal has always been to let enrollment pay for overhead expenses—and dictate any possible expansion. In 10 years, she's moved into a larger space three times and undergone two significant space remodels (though she continues to rent her studio space). "We've made sure that every expansion can accommodate growth for another two to three years," she says.
Photo by Jesus M. Garcia / JMG Photography, courtesy Zamarripa
Anything extra (what was left over once monthly expenses were paid) went into her emergency fund. "If there's any excess—say, $3,000—at the end of the month, we'll throw it into the emergency fund," she says. "It's never a specific number." That fund has grown steadily over 10 years, and it now contains just over $40,000, or enough to pay business expenses for six months. Zamarripa only touches the emergency fund twice a year, for two major outlays: costumes and uniforms.
When she orders costumes in December, Zamarripa pays for them in full, out of the emergency fund, which usually costs around $20,000. That money is replaced, eventually (she calls it "recycling"), when parents pay in full for costumes, upon receipt. It's an unusual choice, but it's allowed her to earn her parents' trust and loyalty. "Parents pay a small production fee," she says, which serves as a reservation for their child's spot in the studio's annual showcase and "tells me that they're committed to paying for the costume." Zamarripa pays for the costumes up front to secure early delivery and to take advantage of discounts. "It's another way to save parents money," she says. She goes through a similar process at the beginning of the school year for class uniforms.
"I decided to leave it as my last resort."
When COVID-19 impacted her community in mid-March, Zamarripa says her instinct kicked in—which, surprisingly, told her not to touch her emergency fund. "I wanted to exhaust all my options before I touched those funds," she says, "so I decided to leave it as my last resort." She focused instead on securing funding from the federal government's Paycheck Protection Program. "We knew funding was limited and it would be awarded first come, first served," says Zamarippa.
Having easy access to the necessary financial documentation helped expedite her business' application and ensure its success. "This loan has helped with payroll expenses and part of our rent and utilities this summer," she says, though she did negotiate a lease forbearance with her landlord. It also helped make up for lost tuition revenue, as Zamarripa offered families a discount during the pandemic.
With a mostly intact spring roster and strong summer enrollment—130 students in June, and 100 in July—Zamarripa has been able to stretch the PPP funds so that she still has enough to cover a month's worth of expenses. Her emergency fund, of course, remains untouched. "I still don't like to think that it's there!" she laughs.