- I pay bills faster than terms. This is not what most people would teach because it has the potential to negatively impacts your rate of return on investment, however, it creates a safety valve that you may need to employ. Consider this situation: If I typically pay my bills within 15 days of 30 day terms, my business becomes accustomed to it. If cash becomes tight, I could slow down my payments and pay within 30 days and boost my cashflow without violating my vendor terms. Benefits of the quick pay approach are potential discounts, usually between 1 and 3%. So this conservative approach can actually create more aggressive returns.
- The company needs protection, not my lifestyle. The company needs to be protected and strengthened. Many people bleed their company of its earnings and to support a consuming lifestyle. If that business faces a downturn, the business becomes exponentially more at risk of closing down. This can become extremely stressful, which only makes failure even more likely. I believe in building the business and keeping it financially strong. I do not think of the company's money as money for my own personal use.
- I build a safety net. Many companies take on added risk and use their safety net to do so. This compounds the risk the company takes on. When I add risk, I want to make sure I strengthen my safety net. I am not always able to do so, but I recognize it and try to get to my comfort level as quickly as possible.
Tuesday, January 13, 2009
Aggressive Conservatism
My approach to the financial aspect of business is best summed up by the oxymoron "Aggressive Conservatism". I aggressively approach the financial well being of the company in a conservative manner. Let me better explain:
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