Running a business is a daunting task. It takes a considerable amount of experience and accumulates a lot of stress over time. Unfortunately, experience is something that most starting entrepreneurs don’t have, and if you’re an entrepreneur who does not have a lot of funds, you can’t afford to learn things through trial and error. This means doing your research.
Your assets are vital to your survival as a business, but many starting entrepreneurs tend to forget essential assets that will help them run their company. Regardless of how fundamental this idea is to some people, it simply doesn’t cross their minds. An essential asset to have is working capital.
Working capital is considered to be your business’ current assets. It’s your business’ short-term health and one that’s important if you want your business to survive. We’re not talking about growth here. We’re talking about your sustainability. Various assets contribute to your working capital, but the most essential is your cash on hand.
Cash on Hand
Cash on hand, or sometimes called cash equivalents, is technically how much cash your company can access in a given period. It’s essential to have, but most entrepreneurs make the mistake of not having it in favor of using their loans and credit cards. Remember, those aren’t assets. Those are liabilities.
Here’s a rule of thumb for cash equivalents: always have enough for the first three months of your business operations. But if you can secure it, have enough cash on hand for a year. That averages about $184,000 for many startups.
Many new entrepreneurs shy away from this asset simply because it’s an unaffordable expense for many new businesses. However, it’s crucial if you want your business to run smoothly. Without a company car, your business’ mobility is severely hindered.
Think about it. You can’t afford to wait for a commute and spend money going to a meeting on another side of town. Moreover, what happens if you have an emergency? What happens if an employee gets injured at work and requires medical attention? You can’t just sit there, wait for an ambulance to come. Plus, ambulances are very expensive. Having a company car bypasses all of those problems.
Some experts believe that you should only purchase a company car if your business demands it. However, if you have the funds for it, consider investing in a portable car wash bay. This way, you can save the time and money you need to get it cleaned in your local car wash. It’s a good long-term investment that makes your company car sustainable in the future.
Marketable securities are assets that can be quickly turned into cash. Essentially, marketable securities can be your financial lifeline when things go wrong. There are many forms of marketable securities, but the most common are common stocks.
Common stocks are excellent marketable security because they can be sold in the stock market at any time. The best part of common stocks is that interest rates are particularly high, but risks are pretty high as well. So if you need an injection of funds, then this is your best marketable security.
Treasury bills are a reliable form of marketable security but don’t have the same possible interest rate as common stocks, but their risk is lower. Once again, it can easily be sold, making them an excellent way to pay debts.
Ensure to invest in marketable securities even if you see yourself at a loss. You don’t want your cash to stay stagnant. Investing in marketable securities will allow them to grow without being too out of reach.
Lastly, we need to talk about long-term investments. Long-term investments for your company are one way you can help it grow in the future to come. We’re talking about index funds, gold, and real estate investments.
Not many starting companies have the fund for this, but you must put some money into these kinds of investments when you do. It’s not a mere lifeline for your business. It will determine where you’re going to be in the future.
Suitable long-term investments can increase your business’ overall capital. A company with healthy capital can grow as much as it wants without having a great risk.
Why Have These Essential Assets?
Ultimately, having these assets prepares you for the worse: bankruptcy. Now, we don’t want you to reach that point, and you probably might not. However, if you do, you at least have enough assets to liquidate your standing liabilities. This means that even if your business does fail, you’ll have at least enough to cut even. This gives you a chance to start a new business smoothly.