Business Scheme and Finance Tips

Posts Tagged ‘Company’s Financial Health’

# 7: Keep a Cash Reserve

This is probably the principle that requires less explanation: simply the unforeseen occur. Although this varies depending on the rotation and size of the company, generally recommend that you try to have at least the equivalent of three months operating expenses as a cash reserve. And please, do not save “under the mattress”, ask your bank for any investment vehicle to meet your needs.

One of the most important benefits of applying these seven principles is that they are aimed at protecting the business’s working capital, which is like “oil” that allows the engine of your business function well and generate sales revenue.

As we see, is not so difficult to make good decisions about money management, if based on good business practices. Now, I invite you, with a vision of long-term business, meditate on the seven principles, and consider the next time you need to make decisions in your company money.
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# 2: There must be balance between inflows and outflows of money in a company

Overall, there are only two important ways that among the company money: for a capital contribution (which may be an investor, the support of an institution or a loan), or by income from sales. Incidentally, these are the only ones who truly make it profitable and healthy, because if there is no sales revenue, any capital injection will be “throwing good money after bad.”

On the other hand, outflows of money are cataloged in costs (purchase of raw materials or products that the company resells, etc.) Operating expenses (salaries, rent, etc.) Investments (in machinery, furniture, or publicity), and finally, profits (which has remained after all other exits). It is essential to respect the hierarchy in terms of outflows of money, if “we” and we owe utilities costs or operating expenses, all we’re doing stupid, because in fact no such “profit.” We can summarize as follows: can not get anything that has not come first.

The problems start when we put more emphasis on outputs than inputs. It is important to take care not to spend excessively, but more importantly increase sales revenue.

# 1: Good Stewardship

A company is like a tree planted, takes time and care before they bear fruit. If we begin to prune the tree when it is still small and growing him as a “bonsai” (dwarf tree), or worse, will dry up and die. In other words, if the owner of a company “pulls” resources beyond its capacity, one of two things happen: they will remain small or die.

To prevent this from happening, the owner must see himself only as the manager or “steward” of the company, or someone who was entrusted to their care and must give the true account owner. In my experience, I’ve seen small business owners grow rapidly when really apply this principle. How can this
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