Do you feel nervous right before you make a big purchase because you’re unsure if it’s really the right decision? Do you waffle back and forth before buying something? The hardest part of buying something for your business is knowing if it’s actually the right time to buy and if it’s the right investment.
Unless you know WHAT to look for in your numbers, it’s SO TOUGH to be absolutely sure you’ve got the funds to buy that snazzy new thing. That’s where money panic and worry come in.
I’m sharing the 5 most important numbers you should check before making a big purchase. Learn how to assess your financial health BEFORE buying so that when you’re ready to press buy, you’re doing so worry-free.
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Business Checking Account Balance (3:22)
The first number to check is your business checking account balance. You must check this because it directly relates to if you can afford the purchase, or not. Once you take a good hard look at what’s in your account, you’ll know right away if you have the money to cover the purchase.
If the purchase is $175 and you only have $200, it’s not a good time to make the purchase. While you do have enough money to make the purchase, you don’t have enough leeway to cover regular business expenses and the unexpected.
How much cushion do you have?
What is the amount of money you feel comfortable having in your bank account after the purchase and expenses? For some people, a $500 cushion is a comfortable number. For others, it might be $2,000 or $5,000. Your comfortable cushion is unique to your business.
Before you buy, acknowledge the amount of money that you need to have in your account to feel comfortable with your finances. Once you know your cushion number, look at your checking account balance and subtract your cushion from your balance.
Account Balance – Cushion = How much you really have to “spend”
Then ask yourself if you can make the purchase. This is how you answer the question, “Can I afford it?”. Just because you can buy something doesn’t always mean that you should buy something.
Having the money for something doesn’t always equal the right time to buy.
Upcoming Bills (7:25)
The next set of numbers to check are your upcoming bills. What bills you have due in the next 2-4 weeks? What expenses will affect your cash flow this month? What money do you have going out of your business?
Looking at your bills doesn’t just mean looking at what’s going out of your business. It’s also keeping an eye on what’s coming into your business, too. When and how often money comes into your business will determine how far out you need to look at your upcoming bills.
For example, if you have daily cash flow, look at your bills two weeks out. If you’re somebody who only gets paid 1-2 times a month, you need to look four weeks out.
Can you make this big purchase and also cover your bills for the next 2-4 weeks? Obviously if the answer is no, then you aren’t going to make the purchase because you need to make sure your bills are paid.
This how you avoid debt in your business. It’s not by just looking at the right now in your finances. It’s looking at what is going to happen 2-4 weeks down the road in your finances.
Wait! I have a bonus tip! My bonus tip is to create a recurring bills calendar. Make a table that lists all of your recurring bills. They can recur monthly, weekly, quarterly, annually, or every couple of years. Include the due date, amount due, and frequency.
Instead of scratching your head in wonder about what bills are coming up, you can just look at your recurring bills table and see exactly when things are due.
You want to have these bills all in one place so you’re not scrambling around in your bank account or bookkeeping program, trying to figure out when the next bill is due. With this table, you’ll love having everything in one place so you always know where to look.
Credit Card Balance (13:54)
The third number to check is your credit card balance. Before you make any purchases, think about your current debt. Are you able to make this purchase without adding to the debt? Can you afford to add to the debt?
Even if you have a credit card that you’re not actively using, look at your credit card balance and think about how much your next payment will be. Should you be making this big purchase or putting that money towards your credit card payment to pay down your debt?
If you’re somebody that uses a credit card every month and then pays the bill in full, look at your checking account balance and see if you can afford to make your payment AND afford the purchase.
If you’re somebody who’s slowly paying off a running balance over time, make sure you can keep up with your payments and still make the purchase.
People create debt payoff plans with really good intentions then they get sidetracked. Instead of putting money towards paying off their debt, they buy the shiny new thing. Staying conscious of the debt you owe helps you avoid this pattern. This is why looking at your credit card balance is so important.
Keep it all in check and well, check your balance. Pun intended.
Quarterly Taxes (18:21)
I know you’re going to groan and grumble over this one but you have to look and see how much you’ll owe when your quarterly taxes are due. This is where the real buzzkill comes.
There’s a couple of things think about.
First, when are your next estimated taxes due? AND how much will you need to pay?
If your next tax payment is in three months, check to see if this purchase will derail your tax savings plan. Can make your purchase and still save for your taxes? If your quarterly taxes are due next month, do you have enough to cover your taxes and make the purchase?
Taxes are the number everyone wants to pretend don’t exist. It’s the number where all the money that seems like a lot in your bank account suddenly becomes a lot less because you have to make a $4,000 tax payment.
Personal Bank Account (22:16)
The last number to check is your personal checking account balance.
You have to know whether your personal finances are stable enough to afford the big purchase, too. Can you cover your personal bills? Are you okay in the personal realm of your finances?
Be sure that you’re honoring your personal needs and not just throwing all your money into making investments in your business. Maybe your personal life needs a bigger investment.
Also, check if there’s anything coming up that will cost you extra money.
Is there anything that would cost you more money than you’d usually spend? When I got married I made sure I didn’t make any big purchases for my business in the months leading up to the wedding because I knew I had a very expensive event coming up.
Maybe you have a big birthday party you’re planning for your kid. Or weekend getaway. Maybe your parents are retiring or the holidays are coming up. What’s ahead of you that’s going to cost more money?
Could this money that you want to spend on this purchase be better used as an owner’s draw? Should you make this investment in your business or is there a reason in which this money is better used for your personal finances?
My favorite cashflow forecasting tool (26:12)
Meet me in the video at timestamp 26:12 for the screen share demo of my cashflow forecasting tool. It’s not really a tool so much as it’s how I use my bookkeeping program to see how future expenses will impact my finances. I use QuickBooks Online for this but you can use almost any bookkeeping program.
Once you can forecast what you’ll spend and what’s left over in your account, just ask yourself, “Should I be making an investment like this in my business right now or is it better to wait?”
Remember. You don’t just check one of these numbers. You check all five of these numbers. They all work together.
If you need help figuring out your cashflow before you make a big purchase decision, download my free step-by-step cashflow map. It’s a huge help to give you direction to map out your cashflow like a superstar!