The Importance of Capital Gearing Ratio To Business Financing.

 Having a great business idea without a startup capital is like wandering a vast desert in search of an oasis. You are literally going to leap in when you see one. Then gulp down the water with all the impurities.

It’s wise to understand what capital gearing is before you decide to borrow or not to borrow to start your business.

What is capital gearing?

It’s a financial ratio that shows the amount of debt of a company to it’s equity. It’s a measure of financial risk. This risk increases toward volatility as the ratio of debt to equity gets higher.

The higher the gearing ratio, the more the interest payable on debt and the lower the earnings on equity. You may end up borrowing to service debt commitments.

The risk doesn’t end with sinking deeper into more debts, your control of the company could also be threatened.

Your creditors may want to teach you best ways to run your business profitably. This may come in the form of business partnership and so called, “business support”. In most cases, their way will not be on the same level with your vision.

Before you look to lenders for funding, have an amount of equity that would guarantee a lower capital gearing. Your capital gearing should be a ratio that keeps with you, the control and the freedom to be proactive and react quickly to evolving trends.

Only borrow when you’re certain you will have a positive leverage. That is, only when projections indicate that your earnings from the application of debt are going to be greater than interest payable on debt.

But should you even borrow to start a business? The answer is Yes. Debt financing is not a bad idea if you’ve sincerely mastered strategies that guarantee favorable returns on intended investment.

You must also be ready to work hard and proceed as if you were bootstrapping.

As a takeaway, keep the gearing ratio lower than 25 percent.

First published on Ayietim Blog

Why Is Understanding Opportunity Cost Important?

 

It’s very difficult to achieve financial prosperity without puting the concept of opportunity cost to use in your spending.

It’s normal to have many wants competing for your money, which may not be enough to get all of them for you.  So, to get the best out of your spending, you must understand the value attached to the best alternative foregone.  This is opportunity cost.  

Understanding ande applying the concept of opportunity of cost to your personal finance, are going to help you achieve the following seven personal financial goals;

1.Spending  Within Budgetary Provision:

A good budget should be a financial plan that accommodates absolutely necessary expected spending within expected income.  Obviously, a good budget is not possible in the absence of opportunity cost as you wouldn’t be to put in the budget, only things which enhance personal financial health.  

So after the budget has been set up with the help of opportunity cost,  you would stay within your budgetary spending limits if you stuck to your budget.

2. Acquisition of Only Relevant Current Assets ;sm

This is possible with the aid of opportunity cost.  When the value of the best alternative is foregone, it means an alternative with a higher value is chosen.  When current assets like vehicles, and furniture are purchased on the basis of durability, most flexible usability and best maintenance option, then only relevant ones are chosen and acquisition of toxic assets are avoided.

3. Elimination of the Purchase of Toxic Assets:  

As mentioned above, the purchase of toxic assets is avoided when opportunity cost guides every purchase.

The elimination of toxic assets from your current assets is important as wasteful maintenance costs are eliminated.

Apart from the elimination of the leakages through wasteful maintenance costs, valuable space is saved for relevant current assets. And .more money is freed up to fund financial growth.

4. Money is freed up for savings:  

No money spent on toxic assets means more money saved.

As more and more potentially redundant assets are struck-off your spending list, more and more money is saved.

5. More Money Saved means significant: Capital (or equity) for investment in other streams of income.

What is the significant of this?

It gives financial health to your money because your saving begins to outweigh your spending..

6. Opportunity Cost is a good guide to good investment:

Opportunity cost if applied objectively and professionally, should help to narrow your options to the most viable investment opportunities available.  

You should be able to rank investment opportunities in terms of highest returns and quickest pay back periods then go for the one that best guarantees your investment.

7. Credit Rating / Worthiness Improvement:

A consistent application of opportunity cost to your spending should naturally help you to lower your indebtedness and consequently improve your credit rating.

Peter Drucker - This is what creates trust.

 

"The leaders who work most effectively, it seems to me, never say "I." And that's not because they have trained themselves not to say "I." They don't think "I." They think "we"; they think "team." They understand their job to be to make the team function. They accept responsibility and don't sidestep it, but "we" gets the credit. This is what creates trust, what enables you to get the task done."

Peter Drucker

Important Considerations When You Negotiate Insurance Coverage.

 To survive and succeed in life, you must take risks. To manage many risks in life, you need insurance coverage.

What Is Insurance Coverage?

Insurance coverage is the amount of risk or liability that is covered for an individual or entity by way of insurance services. 

With an insurance cover, you transfer the cost of a potential loss to the insurance company in exchange for a fee, known as the premium. Insurance companies invest the funds securely and pay out when there’s a claim.

It is not enough to take out an insurance policy, you must know the important considerations to make when you negotiate insurance covearge and after you haven taken out a cover. These considerations are fundamental to making a successful insurance claim.

What are these considerations?

1. Get a full description in writing of every documentation the insurer will require should you have any claim to make,

2. Do a comparative analysis of claims filing procedures of different insurers offering the insurance you are interested in,

3. Bring in your lawyer at the first sign of delay,

4. If the insurer still refuses to keep their own half of the contract, threaten to report the insurer to the appropriate insurance commissioner.

Little Survival Details A Startup Must Not Overlook.

 "Data from the Bureau of Labor Statistics (BLS) shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven't changed much over time, and have been fairly consistent since the 1990s.Though the odds are better than the commonly held belief, there are still many businesses that are closing down every year in the United States."

For a startup to grow a going concern that outlives the founder, attention must be paid to little details, after all God is in the details.

What are these details? They are!

1. Ideas,

2. Cash flow,

3.Salesmanship..

What have successful entrepreneurs said about ideas?

1. Capital isn’t that important in business. Experience isn’t that important. You can get both of these things. What is important is ideas. – Harvey S. Firestone.

2. Get a good idea and stay with it. Dog it, and work at it until it’s done right.– Walt Disney.

3. The air is full of ideas. They are knocking you in the head all the time. You only have to know what you want, then forget it, and go about your business. Suddenly, the idea will come through. It was there all the time.– Henry Ford.

What have entrepreneurs said about cash flow?

1. If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction and cash flow.- Jack Welch.

2. Never take your eyes off the cash flow because it's the life blood of business.- Richard Branson.

3. If you look at academic studies, you can see that stock prices are most closely correlated with cash flow. It's such a straightforward number. Cash flow is what will drive shareholder returns.- Jeff Bezos.

What have entrepreneurs said about salesmanship?

1. "You Don’t Need A Big Close As Many Sales Reps Believe. You Risk Losing Your Customer When You Save All The Good Stuff For The End. Keep The Customer Actively Involved Throughout Your Presentation, And Watch Your Results Improve.” – Harvey Mackay.

2. "Sales Are Contingent Upon The Attitude Of The Salesman – Not The Attitude Of The Prospect.” – W. Clement Stone.

3. "Keep Yourself Positive, Cheerful And Goal-Oriented. Sales Success Is 80% Attitude And Only 20% Aptitude.” – Brian Tracy.

Successful Investors: What's Their Number One Secret?

First, what according to 5 great investors, "The key to successful investment is?"

1.“If you double the number of experiments you do per year you’re going to double your inventiveness.” – Jeff Bezos

2. . "An nvestment in knowledge pays the best interest." - Benjamin Franklin.

3. "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett.

4. How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." - Robert G. Allen.

5. You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." - Peter Lynch

" The success template is already there. It is with those who are a success. If you are close to one learn from close quarters,  but if you are not close to one and  you can't figure out a way to have access then read and learn. Either way you are going to save yourself wasted years of having to wander, fruitlessly, in the woods. Focus on first learning everything you could about the business you wish to go into. But don't spend a life time just learning without taking the leap. Find out;

1. Is it going to fill a need?

2. Are you passionate about it? Because if you are not passionate about it, you may find it difficult to find the way when you run into a hitch.

3. If what you are passionate about is going to fill a need, where are those with this peculiar need? Can you reach them at the lowest of costs and easily too?

4. If you could take care of 1-3 above then get started and continue to learn on it.

Continue to study with greater emphasis on learning to know the habits of successful people in business. How many are in the business you want to go into? Learn from them and learn from successful people in other businesses too. Success has few fundamentals that are the same in all human endeavors. For instance Goodwill."- (From The Book,  "Answers  To Life's Frequently Asked Questions").

No plans to return all staff to the office full-time in the near future.

 Fifty of the biggest UK employers questioned by BBC have said they have no plans to return all staff to the office full-time in the near future.

Some 24 firms said that they did not have any plans in place to return workers to the office.

However, 20 have opened their offices for staff unable to work from home.

It comes as many employees return to work from the summer holidays with the reality of a prolonged period of home working becoming increasingly likely.

The BBC questioned 50 big employers ranging from banks to retailers to get a sense of when they expected to ask employees to return to the office.

One of the main reasons given for the lack of a substantial return was that firms could not see a way of accommodating large numbers of staff while social distancing regulations were still in place.

Many companies said they were offering choice and flexibility to those who want to return, particularly in the banking and finance sectors.

A few firms have already toannounced they have no plans to return to the office until late autumn, and Facebook has said it does not plan a return of employees until July 2021.

SOURCE-BBC.