Blog

Cash is a Tool… | Extraordinary Investing

image_pdfimage_print

As a business leader, one of the decisions that you will continually have in front of you is how to make the best use of the cash resources you have.  If your business is one where there is a lot of business going into and out of the business, such as in a restaurant or manufacturing, your goal is probably to get the best price on the components of your goods.  If you are in a service-based industry, you are probably focused on ways to develop your business more.
In either case, the fact is that it takes money to make money.  No Aepiphanni, there.
What many entrepreneurs fail to do, however, is to try to determine what they expect to get from the money that they are investing, and when to stop an investment that isn’t producing the results that they are looking for.  For example, if you became a member of a local networking group.  Why?  Probably because everyone said that you needed to.  That membership might cost to $365 per year, or so.  The benefits might be association and visibility in this group, blah, blah, blah.
However, the reality is that you’ve been a member of this group for a couple of years and have forged a number of relationships, but very few that have actually turned into revenue for the company.  Do you maintain the membership?  From a cost perspective, probably not.  Without having a clear plan of action and clear expectations for the group, it is difficult to actually say whether you should leave or not.
Determining what you want to get out of the group is not as challenging as you might think.  What drives your business is revenues.  Relationships and visibility are great, but it comes down to cold hard cash.  So if we are talking about networking, you should attach a dollar figure to it, say monthly:

  • Client revenue per client = $1,000
  • Cost of my time to be there versus working on client work – $150*4 meetings per month = $600
  • Cost of the networking group = $300/year plus $6 meals = $25/mo plus 4 meals ($24) = $49
  • Total cost = $649
  • Out of every 10 people you meet, say you get 1 sale = $1,000.

Therefore, you need to meet at least 10 leads per month and generate at least one sale per month for the group to make sense.  Now, you could throw in additional costs such as cost of sales (collateral, time, meetings, coffees, etc) and bump your figure up to maybe $1300 per month, meaning you need to meet 40 leads and close at least 2 deals per month.
Having thought through the scenario in these terms gives you enough information to make a good decision as to whether or not the networking group is working.  Other types of investments need to take on the same thought process: what are my expenses around this event, including my hourly rate, what do I have to do in order to  drive revenue (the number of people I have to connect with in the networking group example) and how much revenue should I expect as a result.
Every decision you make in your business must be thought out this way, or you will quickly be out of business.  If you cannot determine what the return will be, then consider not making the investment until you can determine what the return will be.  Remember – your goal wasn’t just to get in business, it was to stay in business!
Be extraordinary.  Use cash as a tool.  Build an extraordinary business.
Aepiphanni Business Consulting: The Business Strategy People is a Strategy Consulting Firm dedicated to serving the needs of small to medium sized business leaders and executives. We specialize in helping leaders create extraordinary businesses.  We welcome clients in the personal and professional services industries, including Creative and Design Services, Software & IT Services, Professional Services and Healthcare Services.  As always, we welcome your comments, thoughts, questions and suggestions.  If you are seeking a business assessment, or have further questions about creating your strategy or developing your vision, please give me, Rick Meekins, a call at 678-265-3908, or email us at [email protected].
AddThis Social Bookmark Button
 

Technorati Tags: Business Decisions,Cash Flow,Investing,Growth Strategies,Planning,Relationship,Strategy,Extraordianry Business,Extraordinary Business,Management and Leadership,Small Business
%d bloggers like this: