Generating reasonable returns when investing in your company
When investigating where to put money into your company, where is the best place or are the best places to do so? What is the priority? Are there investments that will pay off quickly that can be used to make other investments? What are the risks that need to be considered?
Your goal, as a business owner, is to earn money from the work that you do at your company, whether that is to make ends meet, or to build a company that is extraordinary. This applies to the smallest one person firms through large corporations. As the saying goes, however, it takes money to make money. As a result, we as business owners are usually interested in getting some sort of financial assistance that will help stabilize or grow the business.
If you look at how many larger companies have grown, they may have spent the first 6 to 10 years limping along until they were in a position where they attracted investors to help to take the company to the next level. Then there was probably a second level and perhaps third set of investments that helped to get the company to a point where it could apply to go public. FastCompany offers a recent article that describes companies that have made strategic investments that allowed them to become rock star businesses.
Perhaps going public isn’t your goal. Nevertheless, the way that these companies are able to get the investments that they were able to is because they were able to provide investors with the belief that they would get reasonable returns. Reasonable returns means that if you invest some amount of money into a company, you can expect to get back more than you invested.
For example, if you invested $1,000 per month in marketing, you might expect to get, say, $2,500 per month increase in gross revenue. The same would go for hiring contractors and employees, making software investments or upgrading your office. Sure – you can look at these things as nice to have, or as a benchmark, but in reality, focusing on the “things” rather than the investment could quickly lead to bankruptcy.
How many times have we seen people get the fancy cars and prestigious offices, only to be out of business relatively quickly.
So how do you measure return on a car? Well…perhaps it attracts a certain type of client or customer. So your question becomes – how many clients/customers do I need to have in order to pay this thing off (including maintenance), which is your breakeven – then what is the real return. On a five year note for a$60K vehicle, I would be looking for at least $600K, but more like $1M.
Let’s pause for a reality check, though. Purchasing the vehicle, investing in marketing, investing in employees…these things don’t work in and of themselves. Your company has to do the other things it is supposed to. According to MyBizMarketer.com, an international digital marketing agency, a buckshot or scattershot marketing approach is going to be much less effective and potentially more expensive than a targeted marketing approach, which tend to be more effective and yield greater returns. Simply having a great office or attractive restaurant won’t drive clients or customers to your door.
Actions in your company cause other changes to occur within your company. Investing heavily in business development without having the supporting infrastructure will likely ruin your brand and potentially run you out of business.
If your goal is to build an extraordinary company, you are going to want to think carefully about the investments you make in your company, calculate the costs and benefits and seek a reasonable return. Consider this: rolling along on inertia only works when you are going downhill.
Rick Meekins is the Managing Consultant at Aepiphanni, the trusted advisor for business leaders who are seeking forward-thinking solutions to help them plan for and navigate through the challenges of business growth. Our entrepreneurial multidisciplinary team works with clients to develop differentiating solutions and provide direction focused on lasting, strategic results. We exist to help our clients CREATE | DESIGN | BUILD extraordinary businesses.
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