Things You Need To Know To Prioritize Investments In Your Business One of the biggest difficulties for medium and small businesses is the prioritization of resources. Everyone, has limited resources and endless projects. Prioritizing is not easy: launching a new store or a new product? Expand or reform? Invest in digital marketing or a billboard? 4 min reading top investment tips
One of the biggest difficulties for medium and small businesses is the prioritization of resources. Everyone, including us here at Biz, has limited resources and endless projects. Prioritizing is not easy: launching a new store or a new product? Expand or reform? Invest in digital marketing or a billboard?
How to make this process easier? We have three things to share:
- How much money do you have to invest?
- What is the expected return on each investment?
- What is your opportunity cost?
Step One: How Much Money Do You Have To Invest?
New growth projects need money, no way. And before thinking about which projects to prioritize, we need to understand which sources of capital can make them viable.
First source is equity
Every entrepreneur knows this. Starting a business requires sacrificing family or household resources to buy a new home or change cars. This is usually the first money the company gets, and what gets the business off the ground.
Second source is to bring business partners
When you have a good idea, other people also want to be part. Many entrepreneurs use partner capital to, together with equity, make up the investment needed to grow the company. Many technology companies, such as Biz, follow this path. Not always realizing a project fits in our pocket without someone next to us.
Third source is funding
Not always available to the entrepreneur in the early life of the company, but always an option. Banks and credit fintechs are always looking for entrepreneurs with new project ideas and growth potential. The upside is that in this case the business is still yours, but in return there are monthly payments that need to be made.
What is the expected return on investment?
Let’s define together what is return on investment. Nothing is easier than an example: John has a craft cake kiosk in the mall. It sells 30 to 40 cakes every day. His shop is full every day, but he can’t make more than 40 cakes in one day. He’s already using the oven in his house, his neighbor’s, his mother’s and even his mother-in-law’s.
John then came up with the idea of buying a professional oven. He thinks that with this oven he will be able to produce 50 cakes in one day. The problem: the oven costs 20 thousand reais and the manufacturer said it has a two-year warranty. Is John worth buying the new machine? What is the expected return?
Investment in the new furnace has an annual return on investment of 50%. In just two years will recover his investment.