When it comes to making spending decisions in your business, you want to be ready. Whether that’s purchasing a new building for your business, business equipment, or even a new vehicle — it can be intimidating.
How do you know that you’re investing wisely?
Everything you need to know to confidently make investment decisions boils down to four main things:
Step 1: Know Your Working Capital
Knowing your financial flexibility is an essential factor in making any large purchase. Ultimately you’ll want to start by asking yourself several questions about your working capital:
- What does your business’ cash flow look like?
- Do you have a strong cash flow forecast?
- Do you know what the cost of the investment is going to be?
- Do you know what the required working capital is?
- What source of funding are you planning to use to make the purchase?
Before moving forward with your purchase, understanding your working capital and what your cash flow forecasts for the future look like is critical. This is where your financial team comes to the rescue. Involving your accountant, bookkeeper, and banker early on is the key to making a thoughtful investment into your business.
Step 2: Get Your Accounts in Order
You’ve assessed your working capital and you have an idea of what you can and cannot afford. Now is the time to talk to the professionals who help handle your money. Have you done the following:
- Confirmed your bookkeeper has reconciled all of your accounts?
- Requested that your accountant review the purchase?
- Asked your banker if they’re on board?
Consider the Costs
The initial price tag on the investment you are about to make is not the only price you need to consider. Other expenses that come with a major business purchase may include:
- Sales or Use Taxes
- Maintenance fees
- Shipping and delivery fees
- Installation
It doesn’t stop there. A large investment will also likely cost you a large amount of time in terms of research.
Talk To Your Financial Team
When making a capital purchase, it’s vital that you talk to your accountant, your banker, and even your bookkeeper to ensure that everything is in order financially. You’ll want to confirm whether or not you have enough cash to pay for the purchase upfront or if you will need a loan to make the purchase. Be sure to factor in additional costs related to the purchase.
Before moving forward with your purchase, you must consult the appropriate members of your team to ensure that you pull out all the stops. Your bookkeeper plays a key role in this process. They can help you maintain confidence that all your finances are in order.
Your accountant can also guide you when it comes to tax-deductibility — is your purchase a general business expense that is considered immediately tax-deductible, or a capital expenditure with a depreciable life ?
Know Your Cash Flow
How will your new investment fit into your business’ cash flow? Will the time you invest bring in additional revenue? Will the cost outweigh the benefits of the purchase? The goal is to have additional cash coming into your business each month after buying the initial investment.
Step 3: Do Your Research
Do you know what you actually need and how much you should expect to spend on a quality purchase? Do your research and diligence to understand if the purchase you are about to make is actually needed so that you can make the call in utmost confidence.
Don’t be afraid to negotiate prices, explore different vendors and financial resources available to you. Knowledge is power, especially when making a big business purchase.
Step 4: Make The Purchase
If you’ve consulted your banker, your accountant, and your bookkeeper — and they’re all on board — you’re likely ready to make the investment into your business. Now’s the time to make your move.
If you’re still unsure if you’re ready for your next capital investment, take a step back. Ensure that your finances are in order and that the investment is something your business needs.
Do you need assistance getting your books up to date and reconciling your business accounts, ensuring all your accounts are in order? Contact us today to see how we can help you get ready for your next capital investment.
