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     Investment Advice


This is an interview with chartered accountant Rob Thompson -- with some tips for finding the best places to spend and invest your limited business DOLLARS.
Q: WHAT IS THE KEY TO WISE BUSINESS INVESTMENTS?

A: Firstly, determine if the opportunity fits your company mission and long-term business STRATEGY. If it does, decide if you can allocate adequate resources (both financial and human) to give it a real opportunity for success. Choose only those projects, which have a REALISTIC chance of success. Don't take on too many projects at once. Focus all available resources on a few key projects and plan the others for another time (or another point in your budget) in the future.
Q: HOW IMPORTANT IS A FINANCIAL PLAN THESE DAYS?

A: It is more important than ever in these challenging economic times. If you fail to plan, plan to fail. Your plan should help you ascertain the key success factors in your business and expand on them. This means maintaining and growing your existing client business -- repeat business is easier to obtain than new business, especially in difficult times. It also means monitoring where new business is coming from and how much it COSTS to generate -- of course with an end result of discontinuing failing strategies. You will also want to track key ratios -- gross and net profit margin, sales expenses as a percent of revenue, liquidity, and short-term and long-term debt ratios. Set meaningful financial GOALS -- reducing marketing expenses while increasing revenues, investing in a new process or expanding your staff to grow, etc. And continue to strive to improve when goals are achieved -- never rest on your laurels.
Q: HOW DO YOU ALLOCATE SCARCE RESOURCES?

A: Start with the end in mind! Determine what cash is currently AVAILABLE first. Then allocate available cash only to those areas which help you achieve your long-term goals. Resist saying "yes" to unnecessary expenditures that are peripheral to your core business objectives. In difficult economic times, expenditure on existing client relationships will be more likely to produce additional business than speculative marketing. In more prosperous times, the risk and reward for this type of activity might be different. I'm not saying for you to stop marketing. Just focus on those propositions with the greatest propensity for SUCCESS.
Q: WHAT IS THE BIGGEST SPENDING MISTAKE YOU SEE?

A: Business owners always make a mistake with a shot-gun approach -- ready, fire, aim! Before writing the check, ask how each expenditure helps the business meet its GOALS. And don't be afraid to GUARD your cash -- there is no such thing as a "tightwad" in business. Turn off computers and lights at night, switch down heaters and air-conditioners. Do your networking over coffee or breakfast, rather than an expensive dinner. Have meetings at a local coffee shop or church hall, rather than a high priced hotel. Set an example.
Q: WHEN DO YOU MAKE LARGE CAPITAL INVESTMENTS?

A: Consider you personal RISK preference and also the current ECONOMIC circumstances in your market. Can you afford the interest and principal repayments? Are other forms of capital available? Decisions concerning large capital investment should be taken after careful consideration of all legal, risk preference and financial issues.
Q: ARE THERE ANY GOLDEN SPENDING RULES?

A: If you don't feel COMFORTABLE about any aspect of spending money, don't do it. Be comfortable saying "no". Justify any spending decision based on your assessment of the BENEFITS that expenditure will bring, after consideration of all relevant circumstances. If you say "yes", ensure that you provide those responsible for the project with adequate resources to achieve success and insist on regular reports to monitor progress against a detailed budget.
Q: ANY ADVICE ON BUSINESS EXPENDITURES?

A: Remember the value of cash in the bank and be confident that your decision will further the MISSION of your business.

 

Prepared by Rob Thompson, owner of Thompson CFO Services, a provider of interim Chief Financial Officer services to companies and non-profit organizations. Rob is a UK Chartered Accountant with ten years of international financial experience, working as an auditor and consultant in a variety of manufacturing and service industries. Rob can be reached at or at 770-855-7253.


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