Making Your Investments Work
5 Ways to Improve Your Equity and Invest Further into Your Company
The fiscal quarter is coming to a close and things are looking good for business. However, time has taught you that if you do not grow your business while things are green, you may not survive the dry times ahead. You have a little profit margin to work with and growth costs in the short run. Not all investments are equal though, even when they are in your own company. What should you do?
1. Diversify Your Customer Base
It may seem too obvious to state the fact that the goal of growing your business is to get more business. Yet sometimes the financial power of repeat customers and clients blinds us to the fact that, in order to truly grow a business, you need more customers and clients.
You need to diversify your customer base for security and also to extend your equity. If 8-10% of the total sales of your company come from a single client, you may be at risk. Chances are, you can survive losing one customer of that capacity, but chances are also good that you have more than one repeat customer of that buying power. Three customers like that would control 30% of your total sales, and they are likely to have enough in common that a major trend change in the market would likely draw them all away. This is why it is important to diversify your customer base… for your own financial security.
It also boosts your equity significantly. Your equity, at the end of the day, is not how much money you have put into your business, but how much someone is willing to pay for it. If your business comes with the risk of 50% sales coming from a small handful of organizations, that risk will reduce what others are willing to pay for it, thus reducing your equity. On the other hand, if you have a broad group of customers, in which no few hold the power to make or break you, your risk will go down. Equity will rise.
Take a deep look into your customer base and find ways to invest so that you can diversify your income stream. Put yourself in the shoes of a buyer. What would you be willing to pay for? How much risk would you be willing to take?
2. Build up Resistance to Commoditization
Commoditization is a big word that simply means losing branding power. When you diversify you products without making and marketing in such a way that they are uniquely your own, the public begins to see them as generic goods. There is only one rule for buying generic goods: you get the cheapest price available. Commoditization effectively removes any competing ability you have with similar businesses other than bringing in a lower bid, which will certainly affect your reputation, revenue, and equity. Commoditization should be avoided if you desire any consistent growth.
A good example of this is Disney World. It is essentially a theme park, just like Six Flags, Universal Studios, and dozens of other theme parks around the nation. Yet they work tirelessly and invest millions of dollars into their goods in services so that you do not put them on the same playing field as other theme parks. They want you to happily pay and extra $10 just to get that Disney logo or picture of Mickey Mouse on a t-shirt and they are willing to decorate the doors, the walls, and even the bathrooms of the gift store as elaborately as they need in order to maintain that illusion that they are not a theme park, they are something entirely different. They are willing to pay whatever it takes to stay that way.
What about your goods and services? What makes them unique to your own company? What are some ways that you can invest in them to help them stand apart from your competitors a bit more?
3. Improve Your Cash Flow
Window shoppers look for the bottom dollar and the best deal they can find. Serious customers get invited into the back rooms where the prices are not labeled. The saying goes, “If you have to ask the price, you probably cannot afford it.” How do those serious customers evaluate their purchasing options without that bottom line price? They are more focused on the potential benefit they can get for their investment.
Your cash flow today is important to investors. If it is bad, that will cut out many opportunities for you. If it is good, you will perhaps succeed in holding onto some good investors. But if you really want to be attractive, you need to show potential. How have you grown in the last three years? What kind of trajectory is your business on? If people want their money to sit still they can open low interest savings accounts or fill sock drawers. What can you show your investors that will let them know they can make money by investing with you?
How can you improve cash flow? Get money quicker and spend it out slower. Your cash flow is like a snapshot of the money you have on hand, and any payments made to you that are stuck in process as checks in the mail simply don’t count. Something as simple as switching over to electronic payment can give your cash flow a quick boost. For more ideas, see this article about improving your business’s cash flow.
4. Demonstrate Your Potential for Scaling
A business that is scalable is one whose profit margins increase as revenue increases. This often comes in the form of setting up new business branches in new locations, in order to connect with new customers.
Not all industries are capable of scaling well. Professional services often struggle with scalability. For example, a home-health therapy business may set up a new office to reach a new region. However, they will have to staff that office and hire new therapists to provide those services. Every additional hire may add to potential customer reach, but it also eats into profit margins and eliminates opportunities for scaling.
Software companies have this much easier. They spend their money on the front-end, developing their software. Once it is finished, they simply have to issue licenses, which has a minimal cost. Their challenge lies in making sure that support of the software does not outgrow its sales, unless they are able to charge for that as well.
Sometimes, your money does not get tied up in staff; it instead gets tied up in equipment. You can find professional help in dealing with that at www.equifyllc.com
5. Financial Foresight And Controls
Financial reporting, or “controls” is an important part of doing business. If you do not good with tracking and reporting capabilities for your your finances, potential buyers will be aware and will beware you. This will reflect back on your equity.
Poor financial controls are often a sign of neglect or lack of financial understanding in a company’s management. However, from a buyer’s standpoint, it is hard to tell if that is the only thing going on there without seeking an investigation, which would require the expenses of investigations, etc. Most buyers would simply prefer to shy away from unhealthy reporting and avoid the possibility of uncovering anything more than negligence. If you have not already invested in a means of stellar financial reporting, today is the day to do it. It will help potential buyers see that your are serious about your business.
Financial support goes beyond just reporting though. You need good financial projections that will correspond with your plans for growth. Multiplying branches means multiplying the need for cash-on-hand, and you cannot get that at the last minute. Strong steady growth requires careful planning and strategic reinvestment so that you are able to open strong to the new markets ahead of you. Where can you invest that extra money to help invest in the future growth of your company?
Here are a few suggestions of how to scale your financial controls from a small to a large company.
There is probably a little bit of a song and dance to growing your equity and seeing the value of your stocks rise. The vast majority of the work, though, is simply reminding yourself, your company, and especially potential investors that you are a business, doing business, in business with others, and that you truly mean business.
Throwing elaborate parties to show off profits from a good quarter may entertain a few people for a few days, but in the end, they will remember you throwing money away that could have been invested back into the company for good causes. It could have been spent to bring in new clients. It could have helped to add that special company flair to your goods and services. You could have opened new branches, provided new jobs, or opened new markets. No, in the end they would remember you as a lovable but misguided fool who threw money away because you did not have the sense to track the money yourself or to hire someone who could do it for you. Don’t be that fool. Reinvest wisely.
