There will come a time when your business needs to go on a spending spree. As head of the company, you may find yourself approving enormous budgets for asset building. When we say assets, we’re referring to things like industrial machinery, transportation, and huge amounts of cargo. These are assets with price tags in their thousands or even millions.
It’s a phenomenal amount of money, but the biggest businesses swap this cash like it’s short change. If you have big ambitions, your business will ultimately get to this level too. You might find yourself in the market for 2nd hand general cargo vessels or a fleet of delivery trucks. You need to know how to make cautious and responsible decisions. We’re here to show you how.
Evaluate your company truthfully
The first step is taking a long, hard, honest look at your business. Entrepreneurs and business leaders have a tendency to look at things with rose-tinted glasses. We are ambitious and optimistic people, which can often lead to decisions based on self-believe. Making a huge financial decision based on potential is never a good idea. Assess whether your company can shoulder the burden right now. Is the money and demand in place for that cargo vessel or delivery fleet?
Enormous asset purchases are not for short-term business models. They are investments in the future of the company. Look at the five and ten year plan for your company (you do have a ten year plan, right?) Where does this giant purchase fit into your plan. Will it help you achieve those objectives and goals in the long-run? Don’t spend a fortune on something that will only solve immediate problems. Think one step ahead, and invest in the future.
It’s crucial to remain realistic about your purchase. Take a rational approach, and conduct a cost-benefit analysis. Even better, get your most logical team member to do the same thing. Analyse the long-term benefits of this investment, and weigh it against the immediate cost. We know that most entrepreneurs love to make lists, so get to work, and analyse whether it’s really worth it.
How’s your cash flow looking?
You should only consider a huge purchase or investment when your cash-flow is nice and healthy. Even if you’re taking out a loan, you ideally want to be liquid and cash-healthy. This big purchase is about to eat up a big chunk of your accounts, and that puts pressure on your finances. Remember, you’ve still got other financial responsibilities to consider. Think about the purchase in a broader spectrum of your economics.
What are your other options?
Before you dive head-first into the purchase, have you considered all the alternatives? For instance, if you’re looking at delivery trucks, could you lease or hire them instead? Could you employ a logistics company? Exhaust all other avenues before making your final decision.
Ultimately, asset purchasing is unavoidable, and you’ve got to spend money to make money! But, when you do, make sure you’re making a well-reasoned, financially-sound investment.