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Risky Financial Decisions

A risky financial decision under consideration was made by a close relative, who decided to purchase an already operational liquor store that had been closed for a month due to serious documentation issues. However, the relative believed that it would be easy to operate an already established entity as compared to starting one from scratch. One point that should have raised alarm was how low the owner was willing to go when selling the store.

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Several serious issues emerged shortly after the acquisition of the store. For example, apart from the lack of permits, the lease has not been paid for, which resulted in a legal battle with the property management company managing the premises. He found himself with very limited time to clear the debt. However, after negotiating with the company, he was given an extended period of time to clear the debt. He was forced to secure a commercial loan to clear the debt, get permits, and add more stock. The COVID-19 restrictions, however, impacted sales severely, leading to a significant drop in revenue. The downside to this decision is that he took on more than he bargained. Consequently, he lost a lot of money and time on an investment that would not succeed. The upside to the situation is that he has learned from the experience and future decisions will be made after critical evaluation.

Having clearly articulated goals and a robust plan for achieving them would minimize the level of perceived risk involved in a financial decision. A financial plan providing for an effective framework for determining how business activities will be funded and monitored to ensure that the strategic goals are met. Furthermore, it will lower the risk I might be willing to take on with regard to a financial decision by ensuring that there are adequate funds to smoothly implement the decision. During the financial planning process, critical activities should be clearly determined to ensure their achievement within a specified timeframe. Having a solid plan with clear goals would allow me to know how much money I need to invest in a venture to achieve sustainable growth. Lack of this knowledge might lead to fortuitous spending of money and time, consequently heightening the risk of failure. Therefore, an appropriate plan and smart goals can provide an accurate picture of the amount of capital needed to implement financial decisions, thus lowering the risk of unforeseen events.

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