How do we work out the return on investment for our investments, including our business?
As a starting point, let’s say we own a residential property investment and we can quickly work out our total ROI.
Now what if we apply the same logic to your business.
So, the inherently lazy property investor might generate a total ROI of 11% per year.
The business owner stands to nearly triple the return of a property investor for the same asset value. Profit is only part of that picture.
Why do we focus so much on property investment and superannuation returns?
Knowing the value of your business and in turn the total ROI, can help with:
- Distributions – do we distribute dividends to business owners or re-invest in a high returning asset?
- Capital growth – what can we do to enhance our capital growth and business value?
- Remuneration – can we use the total ROI as a performance measure for key staff?
- Marketability – how do we access the value of our investment, either in total or little by little?
- Time management – how much time do owners given to their business if it generates the highest ROI?
- Total balance sheet – what is the value / total ROI of all of our family / personal assets? How does business value contribute to our family / personal wealth?
All businesses generate a return, but not all business owners think of this asset as an investment, nor treat it like one.
Next time we will explore the concept of a total balance sheet approach for a business owner.
