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Run your business like a household budget

It was probably Margaret Thatcher back in the late 1970s and early 1980s who first suggested that the national economy could be compared to a household or even a corner shop budget.

Whatever your views of the politics of the period are certain elements of that proposition probably ring true to many business people.

In fact, there are numerous similarities between some of the basic disciplines a successful household budget needs to conform to and those that apply to a small, medium or even global business.

Income versus expenditure
Much of this is relatively intuitive.

Whether you are a household or a business, ultimately your income must exceed your expenditure if disaster is not to be an inevitable consequence.

In both cases, your expenditure may vary as may your income over time. That means you will need to cope with questions such as how to bridge cash flow problems or perhaps in some more happy circumstances, how to best deploy your surplus cash at a given time.

You will also need to be able to truly understand your income and your expenditure. Whether you are a household or a business, if you do not have an in-depth understanding of both components of what might be called your profit and loss, then catastrophe will surely follow.

Borrowing money
Both households and businesses need to borrow money from time to time, unless they are extremely fortunate.

In the case of a personal budget that borrowing might be for things such as a house purchase or perhaps buying a car. In the case of a business, it might involve purchasing a new piece of machinery.

Even if cash is readily available, it might not necessarily be in the best interests of our hypothetical business or household to use it. Instead, it may be more cost-effective to use our cash reserves for other things and to investigate the options for borrowing money, for whatever the need is, from a local bank or a commercial lender.

Simply do your homework and you can find out the types of solutions that may be suitable for your needs. The internet has lots of free and useful information that may help you in your decision. For example, for business funding, a specialist provider such as Everline has lots of online information, as well as typical loan details, so you can get a feel for what most suits your requirements, including criteria, affordability etc.

Making use of business credit might prove to be a preferable option to using your own liquid cash reserves.

A prudent and responsible attitude
At the risk of stretching the analogy between household and business too far, it is perhaps worth pointing out that the typical responsible household has a prudent attitude towards expenditure managing a healthy balance between its income as opposed to spending.

This is a discipline that should be part of fundamental business-as-usual for any commercial enterprise but sadly it is not unknown for these basic budgeting principles of life to be overlooked.

A typical household has to budget effectively and with perhaps an inclination towards conservatism and realism. This is a basic orientation that many businesses would be well advised to adopt, as opposed to an unrealistically optimistic view of things such as income and cash flow projection.

Where the models differ
Of course, the analogies can really be stretched beyond breaking point.

In the case of a household, it’s perfectly possible to decide to put off an item of expenditure for the foreseeable future. In the case of a business, an indefinite deferral of expenditure may not be a realistic prospect. The challenge for a business might be to find innovative ways of obtaining the funding required.

However, when all is said and done, some experts would argue that a little more earthy realism in business financial management along the lines of that typically applied in the average household might not go amiss.

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