It’s incredible how many people can’t do (or ignore) basic math when it comes to their business (or their personal lives):
- Revenues minus expenses equal profit, and a business can’t survive in the long term without profit unless it has a subsidy in place.
- You can’t sell something for less than it costs to make/deliver it.
- Not all products and services are created equal. Make sure your internal investments match the external market realities.
- Cash inflows must exceed outflows, or a strategy needs to be in place to cover the shortfall (and this issue should only ever be a short-term problem—120 days or less).
- The status of your work backlog and sales pipeline is a good indicator of your future.
- If your Days in Accounts Receivable exceed your Days in Accounts Payable, you are creating a cash flow problem.
- Your cost of capital should be less than the return on your investment opportunity.
- Debt is never a good strategy to cover up bad management decisions or business model flaws.
- Minimize overhead expenses relative to revenue results.
- Ensure adequate investment in revenue-generating positions (e.g., sales and marketing) to leverage opportunities.
- Your level of productivity should always exceed the rate of inflation.
- Don’t pay yourself more than the business can afford.
- Keep enough capital in the business so that you can handle short-term emergencies and/or take advantage of unforeseen opportunities.
- The compound value of interest over time is an amazing thing.
- Businesses and families should have an operating budget and live within their means.
- Have money set aside for emergencies because they do happen.
- If you don’t invest and save for your future, you may not have enough money to live on when needed.
Hope is never a good strategy when it comes to your business or personal finances.
Related articles
- The Biggest Credit Card Mistake Entrepreneurs Make — and How to Avoid It (news.terra.com)
- 7 Best Money Management Tips For Your Business (rodkirby.com)
- Cash Flow Management: The Key to Your Business’ Vitality (fundinggates.com)