You have two choices when starting up your business:
- grow slowly and fund future growth from profits accumulated over time
- borrow money from lenders to invest and expand exponentially, then pay off the pending debts
Just as a financial year sees many ups and downs, a business goes through various stages during its life cycle. During the initial start-up phase, you may want to invest more into buying raw materials or other resources. During the growth and expansion phase, when you’re opening up a new franchise or expanding into a new market arena, you may want to invest more in marketing and promotional initiatives to spread the word and increase your customer base.
What’s most important to remember during any of these stages is the golden rule of business: always maintain a balance between your assets and liabilities on the balance sheet. In other words, at all times ensure you are worth more than you owe. Always balance your equity and debt – the equity position on a balance sheet, which is equity divided by assets, should always remain between 30 and 50 percent.