Preface: Now you have a financial target, and now you know when you “don’t have enough (working capital or equity).” We omit the “when you have too much” because that’s usually not the problem.
Surviving a Debt Euroclydon (Segment VI)
Credit: Donald J. Sauder, CPA | CVA
Typically, as an entrepreneur builds equity with profitable earnings, liabilities decrease as they are paid-off, and investment increases. Therefore, the measurements and grades improve with time. Startup business ventures should appreciate that their most substantial risk is liquidity, i.e., measured as working capital.
Diligent financial managers will measure this monthly, and possible graph the trends on comparable actual working capital to the 100% level
The above working capital tool is advisedly applicable to businesses in almost every industry. Diligent financial managers will measure this monthly, and possible graph the trends on comparable actual working capital to the 100% level.
Preparing for a Debt Euroclydon can begin with two easy tools. Tool one is working on optimizing the analytical ratio of equity to total assets or total liabilities and equity. Tool two is tracking trends with working capital levels and grades. These are quantitative financials to bring a mathematical approach to what some advisors say is too much…debt, payables, etc. Now you have a target, and now you know when you “don’t have enough (working capital or equity).” We omit the “when you have too much” because that’s usually not the problem.
…..while financial tools and weather forecasts may be helpful, always keep the following (Questions) top of mind, because that’s what your financials reflect.
If your business has all the necessary financial reporting to begin these steps towards diligent financial preparedness, then your also advised starting to be your own business “financial weatherman.” You can achieve this following these two easy tools. If you don’t know where to start, then all you need to do is ask for help.
Above all, when preparing for any business risks or pressures, i.e., a Debt Euroclydon, while financial tools and weather forecasts may be helpful, always keep the following questions top of mind, because that’s what your financials reflect.
1) What is our enterprises’ purpose?
a. Are we achieving that purpose effectively?
2) What is our enterprises’ vision?
a. Are we working successfully towards the vision?
3) What are our enterprises’ core values?
a. Do we commendably exemplify those values?
4) What is our enterprise core focus?
a. What do our customers appreciate most about our core focus?
5) What does our business contribute to the community?
a. Are our products or services, adding the most exceptional value possible?
Finally, many business successes and opportunity are a matter of “time and chance.” They are not necessarily indications of superior strength, wisdom, understanding, or skill, so as an entrepreneur give thanks daily, and live with gratitude.