Just because business is doing really well and you have a waterfall of cash streaming into your corporate account does not mean that you can go on a spending spree. Even if you are buying for business purposes, it is not a good idea to wantonly spend your business revenues. You have to remember that business will not always be as profitable. You have to prepare for the rainy days, so to speak. You do not want to get swept off the scene when business conditions turn grim. You have to learn how to make the most out of your business revenues to ensure that you will still have enough to survive during lean periods.
Part of your business revenues should go to your reserves. Determine how much you can reasonably take out from your revenues without affecting your allocation for your other expenses. Your reserves should be invested in safe instruments like government bonds and fixed income accounts. As you do not expect to touch your reserves in the near future, you want maximize its earning potential. Ideally, you should grow your reserves into an amount that will allow you to start over in a worst case scenario.
The rest of your business revenues can be reallocated into your operations. You cannot simply divide the revenues equally among your various operational areas. You have to look closely at your business organization and identify the most important areas that require funding. It would also be important to prioritize areas according to their financial requirements, their contribution to the company’s business goals, and their potential in bringing in more revenues. This kind of financial analysis and planning is not done overnight. You have to take the time to put revenue allocation as part of your business plans and forecasts. In the business world, how you spend money plays a big role in how you actually make more money.
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