Basic business economics

calculator and pen

Here are a few basic business economic principles and considerations. All should be factored into your business plan if you wish to maintain a strong and resilient business.

Income Vs Outgoings

The amount you bring in must be more than the amount you spend. At the beginning of a business term or a when a business starts, this may be difficult, which is why many companies have overdrafts.

Increasing your income should be your first priority, but long-term businesses will often create a dynamic that keeps their overheads down consistently.

Saving Vs Spending

If you can find a way to save money, say for example by reducing your overheads, then it is the same as making more money via income streams. However, if the saving is the result of something that damages the customer experience, your product, or your brand, then it needs to be reconsidered and changed.

Spending money on your business, investing in your business, and trying new things is important. It is up to you to save the money or resources needed before spending it.

Liquid Vs Fixed & Current

Keeping an amount of liquid resource is a good idea, but money has the lowest value in business. It may be a better idea to invest your money back into your business into fixed assets or current assets, or to invest your money into easily dissolvable investments.

If you run into trouble or need funds quickly, you can realise your easily dissolvable investments. Investing in fixed or current assets may help grow your business, but is still a risky investment if you cannot guarantee a reasonable return on your investment. If you cannot guarantee an ROI, it may be better to save your money within an easily-dissolvable asset until you can guarantee a return on your investment.

Cash Flow vs. Profitability

Ideally, you want all the cash coming into your business to be profit, but there are times when getting cash into your business is more important than profit. Without a cash flow, your business grinds to a halt, but if you do not make enough profit then your business goes bust.

It is up to you to manage the balance between profitability and cash flow, but it is also important that you understand that losing a little is sometimes better than not making any money at all.