If you own or manage a company, it’s essential that you give yourself financial buffers whenever possible. Business income and expenses are always in a state of ebb and flow, and you don’t want to get caught having to pay for something business-related when you don’t have the money and can’t get the capital easily to secure some necessary part of your company structure.
Financial buffers can be in several different realms. You need to make sure that you manage your inventory properly. You should protect against legal situations. Your company needs to be prepared to scale up and down. And, there are lots of financial benefits to outsourcing as you need it.
1. Manage Inventory
Financial buffers often come into play if you have inconsistent inventory needs, and especially if you’re new to having stock that comes and goes, it can be a tricky puzzle getting your inventory right. If you have certain clients or situations that come and go on an irregular schedule, then it’s extremely important that you have a buffer built into your inventory so that you don’t end up with back orders that you can handle, and you also don’t end up with extra stock and products that gather dust on shelves.
2. Protect Against Legal Problems
There are also many different types of situations where your company may have to do some legal manoeuvring when it comes to finances. For example, if you need to pay your employees Worker’s Compensation, that money has to come from somewhere. Typically, every business will have certain funds set aside or have the appropriate type of insurance to cover these costs.
As the company owner, you need to make sure that these policies are always in effect so that you don’t end up bankrupting yourself because of administrative errors or legal negligence.
3. Be Prepared To Scale
One of the more difficult things to do at various times in your business timeline is to scale up or scale down quickly and be able to profit accordingly from those moves. Many businesses go bankrupt because they are not prepared to scale up when sudden success hits. This is a tragic story, but one that happens all too often. You have to have a plan in place for when there is an uptick in need for your business resources, and then you have to have a similar program for when it’s time to downsize.
4. Outsource When You Need To
In various stages of your business plan, it may be smart to outsource. A good example is if you suddenly have warehousing and distribution needs, but you don’t want to make your own infrastructure. Rather than trying to invest in a brand-new facility, it often makes sense to use an existing company for what they specialize in.
Financial safeguards ensure that those little (and sometimes big) problems don’t cripple your business, forcing you to close your doors. Having these and other financial buffers at your disposal is the key to long term success, regardless of how promising the market looks at the time you’re reading this.