A few days ago I wrote Job or business – part 2….here is the part 3
Look at Risk Reduction techniques
The most important thing that a business does is to create different streams of revenue. Even when you have a job you have to (must) create different sources – dividends, rent, interest, side business. This will ensure that in case you lose your job you are not stranded and not have enough money to meet your day to day expenses. You should also take adequate insurance – medical, life, car, house, fire – whatever is applicable. You cannot ignore risk. l
Know how much to leverage:
It always looks nice to borrow and buy! but no business should borrow money for its expenses – except when it is a start up. Similarly for a family borrowing more debt than 3 year’s Cost to Company looks dangerous. Remember the ratio of Debt to Assets has to be 1:2 or better to have peaceful sleep!
Keep stakeholders happy, but economically
Many companies spend far too much compared to what they earn. As an individual or as a family YOU cannot spend more than what you earn – except temporarily – when you can borrow. However the loan (and interest) has to be paid. So all the stakeholders have to understand and accept that income may not keep growing and that there will be times of low income (illness) and times of no income (retirement) for which reserves (investments) have to be created.
Cash flow vs Profitability
All stakeholders have to understand that a business maybe profitable but maybe re-investing a lot of the cash. This will create cash flow crisis but that does not mean anything if it is well planned. If you knew you were going to burn cash and that cash was already provided for, it does not mean a thing!
Keep Inventories Low
In the home context it is the unnecessary things that you buy. If you have 50 tee shirts, 12 pairs of shoes, 30 formal shirts and 25 formal pants – apart from 3 digital cameras, one unused motorbike….you are getting the drift right? All these unnecessary things are making your ‘money’ usage very poor.
i am sure there are more……can you think of any?
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