Some time ago we talked about some indicators that you should know to manage the finances of your business, but today we are going to introduce you to some concepts that you should know so that you think about analyzing the scalability of your business and you can take it to the next level. step.
- Working capital : it is the money you have to invest and get a return on it. For example, imagine that the investment you made for your equipment was RD$15,000, to that add RD$10,000 that you used to purchase materials, then your working capital is RD$25,000. It is very important to know it and have this value present, because in the end when we evaluate the profits we must take into account the capital so that our business continues working. And the more you increase this, the higher your production capacity will be.
- Leverage : this concept refers to the external capital that we use in our business, it refers to leverage because you are "promoting" yourself with the help of external money. The greater the credit of your company (loans), the greater your leverage . This does not mean that it is necessarily bad, but we must do a more detailed analysis of the business to know how it affects it.
- Good debts : this refers to debts that allow us to generate income and obtain a return. In a nutshell, it could be "leverage debt."
- Liquidity : This refers to the ability of a business to hold cash. Imagine that tomorrow you must meet payments, then liquidity is how easy you can get money to pay it. If you have many investments made in non-current assets (such as buildings, etc.) then you may have reduced your level of liquidity .
- Budget: this refers to planning regarding expenses in the business, that is, allocating money to specific activities. For example, having RD$5,000 available for transportation.
Here are some basic concepts used in finance, it is important that you continue to learn about this, because this way you will be able to continue managing your business, and you will be able to take it to the next level.