Starting up a new business is a risky and expensive activity. It’s all too easy to get enveloped with trying to have everything new and high specification rather than focusing on the fundamentals of getting the business established. It can be quite overwhelming the many opportunities to buy the basics of business (particularly if you have been used to having them around when previously being employed). Below I offer a Finance Managers perspective on how to make the best decisions for you and your business to establish yourself quickly and at the right level of investment.
Accountants are trained for many years to apply rational and unemotional models to making key decisions and it is worth revisiting a few key ones here:
– How quickly will I get my investment money back as sales and profit? Days, months, years? How many units / hours do I need to sell to get a payback?
Value Added vs Non Value Added
– What value does this purchase bring to my product or service? Does it increase the price at which I can sell on? Does it truly differentiate me from my competitors? Does the customer appreciate the extra value? Could I do business without it, is it essential?
– How long will my cash be tied up in the stock I have purchased? Will I have to discount the stock to get my money back? (Particularly important for considering purchasing with bulk discounts). Will it cost me money to store the stock for a long period of time?
Risk vs Reward
– How risky is the outlay of investment? High risk and your future sales and profit projections should be reduced to reflect the uncertainty of reward. Would I still make the same decision to invest if the returns were lower than I forecast?
Think how the above decision criteria can now be applied to anything from buying office stationary to investing in a new website. They are simple to apply and don’t take long to work out. Large corporate Finance Managers often use the metaphorical ‘back of an envelope’ to make a quick assessment of feasibility.
Taking time to consider the above questions helps re-introduce some objectivity into a spending or investment decision. Your business network will be extremely persuasive as to why you need to buy this or spend time on that. Be your own finance coach and you will introduce just the right amount of decision integrity that your business needs.
As a Finance Director working in a Global FMCG working with Sales, Marketing and Operations teams, Rachel has specialised in bringing Finance expertise to the heart of business. She is passionate about helping Finance professionals transform into Business Leaders. Rachel Fletcher can be contacted via her LinkedIn profile.