The purpose of going into business is to earn a profit- and make some cool cash. But then, the irony remains that to get money; you need money. In other words, in business, you spend money to make money.
However, for most people- especially small business owners, it is not an easy task deciding whether or not to pump money into projects like expansion or acquiring new employees. If you are part of these people, this article is for you!
Luckily for you, I would be sharing tips on how to make significant financial decisions at crucial times in your business.
Here are some fantastic tips:
1. Don’t depend on the unpaid cash
As a new person in your industry, chances are you would have customers who are getting your products/services on credit. But then, don’t forget you have bills to settle. Depending on money that hasn’t been paid (as a source of income) would be a massive mistake if you want to both take significant financial steps and pay bills.
Managing your cash flow should be your first agenda while making big financial decisions. If not, your business could have a record-breaking revenue on paper, but then would go downhill if there is a lull between when the work is done, and the cash received. Until these customers pay their invoices, don’t think of the advances offered to customers as cash. In other words, don’t consider it as cash until it gets to your hand.
2. Keep documentation
Don’t skip this. Don’t skip this! You’ve got to have a method of approach- and you can only do this if you have a clear understanding of where your money lies. Don’t try to keep all the info in your head- get a financial assistant software. Perhaps, excel spreadsheet could do the job.
I want to reemphasize on not factoring in cash you don’t have at hand. For instance, if you are going to get paid for a service rendered today in three months, factor the forecast on your spreadsheet. Do not base your assessment on cash, not in hand.
3. Do a review
Choose a date in the month where you would make a review of your spreadsheet. This is important so you wouldn’t be caught unawares by the bank. When making big financial decisions, you might incur some expenses you didn’t budget for. Ensure you include these budgets in your review.
Go further by making a possible forecast of how much impact these financial decisions might have on your finances- do not forget to put appropriate measures to tackle these hits.
4. Model different scenarios
Things might not always go
as planned. Make adequate preparations for worst-case scenarios. Taking some
time out to ask the question, “what if?” would help you weigh the chances
Nobody can act you more than you! If you would be making huge financial decisions, you might have to consider several factors- both personal and financial.
Remember, if your company must grow, its financial health must come first in any decision you make.