Knowing Your Options Before Making Major Purchases
Is your business resilient to major purchases? Every gym or fitness club owner searches for this elusive answer especially when they consider upgrading the machinery and facilities, but some often overlooked major purchases could also include adding new headcounts to the team, refurbishing the location or running a marketing campaign. Some business owners prefer to make major purchases according to their instinct, but for the others, we highly recommend planning for major bumps and lumps along the financial year before we break out the credit card (or cheque book).
Generally, we usually discourage the funding of major purchases from your business’ working capital unless you are 100% sure that you have the cold hard cash to cover the investment.
Of Major Purchases and Minor Considerations
The bigger the purchase, the larger the analysis you’ll want to go through. There are three main key points that you should discuss over with your management team before making the decision, which are:
- Listing out the benefits of the project
- Total cost
- Creating a projected cash flow statement, identifying the costs and benefits of the project on the time frame for the next 12 months (Download a cash flow budget sheet by BizFilings here).
When in doubt, one can also utilize financial analysis tools (or an accountant) to also decide on whether or not the major purchase makes business sense to proceed with. There are also plenty of other parties that you should discuss major purchases with, according to the project type. For example, expanding your gym to a new location would require you to discuss the matter with real estate brokers or agents to find out the features, price range and cost. On the other hand, upgrading the equipment or facilities in your health club would require you to negotiate your budget with suppliers or agents for better value for money.
In short, making major purchases is essential in expanding the business but should never be done alone. Always involve your stakeholders and make sure that you are well-informed before you buy. For more info on how you can finance a major purchase, read this article by Experian.