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How to allocate funds appropriately


Introduction

Allocation of funds is quite serious. Businesses fail and business people go to jail for inappropriately allocating funds. Of course, if your intent in the allocation of funds is not to commit fraud, then it is most likely that you will not need to worry too much about going to jail. Still, allocating funds is a serious matter that ought to be discussed with all of your trusted business associates (including those trained to deal with finances). As every business has different costs, each business must allocate their funds appropriately.


Instructions

Below you will find commonly used terms in the area of allocating funds that should prove helpful to you as you decide what type of allocation practices are best for your company. Remember that these are general suggestions and you will need to go through your own individual process to put numbers and percentages to the principles listed here.

 Fair and appropriate - Allocation of funds ought to be fair and appropriate when all is said and done. Of course to do so seems easier said than done, but in some cases allocating funds does not need to be an extremely complicated procedure appropriate only for accountants. If you are sure that the funds you have are in the areas and amounts that are most appropriate for your company that is a good place to start.

 Legal - As was alluded to earlier, allocation of funds carries with it a certain caution that no matter how you decide to allocate your funds you had better do so legally. Embezzlement and any other method of using company funds for personal gain in any of its forms is to be avoided and protected against.

 Necessary - In order to maintain a successful business, funds need to be allocated where they are most necessary. There are many differences of opinions on this topic. Staff members might insist that they are the most vital part of the business and should have more funds allocated to their compensation. Other business might see long term growth as their most necessary need and therefore allocate funds back into the building up of the company.

 Urgency - It would be inappropriate to discount the need for the allocation of emergency funds or to withhold funding in the event of an urgent matter. Establishing a procedure now for the amounts and policies for distributing funds on an emergency basis will make the actual allocation of those funds run more smoothly.

 Simple and flexible - There are many times when through the natural course of events the allocation of a business' funds will need to be adjusted in order to create better cash flow or to prevent unnecessary spending. Your allocation of funds ought to be simple and flexible enough that these productive changes can be accommodated.

Conclusion

Allocation of funds is essential to a business from the very beginning. You need to have a clear idea of how you will allocate your funds before you can hope to receive financial assistance from investors or capitalists. If you are really at a loss for how to begin this process you may look into the financial records of companies that are in your similar industry. Publicly held companies will have their financial statements available and simply looking at how a respected company in your similar field allocates their finances might give you the start-up direction that you are looking for. After you have an outline or an idea for how you think funds should be allocated, you can use trial and error to fine tune the allocation that you have put in place. Change is a necessary part of any business, and so long as you have a good foundation for how you believe your funds should be allocated, do not worry if you feel changes need to be made down the road.

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