This week I have been sorely troubled by conversations I have had with business owners and retired business owners regarding their businesses and their return on investment on their businesses and their other investments.
With the world financial market’s being impacted day by day with developments in the USA it is topical to talk about return on investment.
One retired business person I’ve spoken to has seen over 50% of the initial capital he invested 18 months ago vanish in unrealized losses. To say he is not happy is an understatement. And yet I am sure that others would have their own stories to tell.
It’s not my intent to preach doom and gloom but rather to make the important and yet often overlooked observation that with the promise of greater returns also comes a greater risk.
The risk vs. return equation is one that investors overlook at their peril.
That said different individuals have different risk profiles or tolerances.
Also let’s understand that as a person’s financial literacy improves what used to be risky (due to lack of understanding) becomes less risky and/or more tolerable because one has the financial literacy to make informed decisions about one’s financial affairs.
What about you?
Here’s a couple of questions to mull over.
How would you characterize your risk profile?
Do you consider yourself financially literate?
If not are you willing to educate yourself so at least you can ask informed questions of your advisors and make intelligent choices?
Do you have good financial advisors on your team as part of your personal and business wealth creation plan? If not why not?
But I digress…
Back to the main point of the article.
Here is a challenging some might say confronting question:
What return on investment are you currently achieving from your business?
What is your hourly rate of pay? (Your weekly wage/Average hours worked per week)
Is it 10%, 20%, 30% or more on your investment?
Given the commercial risk and the effort that you put into your business what do you think it should be?
If you said at least 25-30% or more you would be on the money.
If you said, or worse still are accepting less from your business you are doing yourself a disservice.
You have a choice
1. Continue as you are – earning peanuts (not good)
2. Engage external assistance to review where your business is at and map out a roadmap for the way forward (This is one of our specialties – we can do a comprehensive Business Analysis to identify, locate and retrieve untapped profits from your business)
3. Activate your exit/succession plan (you do have one don’t you?) and invest the proceeds into suitable investments and fund your lifestyle from the cash flow generated from the investments.
Please do take a moment to consider your current situation. Continuing to do the same thing over and over and expecting a different result is the definition of insanity.
The good news is there is hope.
You can take positive action to achieve a better return from your business.
Don’t procrastinate and put it off.
You may be coming into a busy period and that is all the more reason to ensure your business is running optimally so you maximize your return throughout your busy time.
Don’t fall into the “fuzzy thinking” of I’m too busy, I’ll wait till after Christmas, since in our experience if your business turnover at least $500,000 p.a. it will probably cost you at least $250 - $500 per day in profit leakage from your business everyday that you delay in taking action. (Larger/Smaller businesses will typically have profit leakages that are multiples or pro rated respectively).
Do the sums for your business – what does that mean for you?
To find out more drop me a line at PeanutsNoMore@rightteam.com.au
Property Prices
A sensible look at the future of real estate
When it comes to prices, we forget (or ignore) the obvious. We forget that the value of an asset should sensibly be measured by what that asset can pay us. It's called dividends. Yield.
For property investors, that means rent.
It doesn't make sense to invest in assets that pay small (or near-zero) dividends.
Oh, don't be silly, say the modern investors. "These days, we invest for capital gain not yield."
Well, that's just an admission that we've all lost our senses.
If the reason we buy something is because we think fools who've lost their senses are going to come along and pay us a bigger price at a later date, we are truly fooling ourselves. At best we are high-risk gamblers. At worst, we are complete mugs.
Jonathan Pond author of Your Money Matters writes,
"Any property that is selling for much more [italics added] than seven times the annual gross rental is probably not going to be a particularly good investment."
So, grab your calculators and work out your own investments or the investments that some spruiker is trying to sell you. Guess what? It doesn't make sense, does it?
Extracted from recent article by Neil Jenman.
To read the full article go to http://www.jenman.com.au/news_article.php?id=244
Wise words in challenging times
In times like these it’s good to heed the counsel of great minds. John Templeton, who lived to 95, is one of the most famous investors of all time. He said:
“We have never been able to predict business cycles and we have never been able to predict stock market cycles… and we have never found any person whose predictions on this are right more than 60% of the time. But we say to our clients, “Don’t worry about it. Prepare yourself. You know there’s going to be a bear market. And you know there’s going to be a business recession. You just don’t know when.”
And:
“You prepare yourself psychologically so you don’t get so frightened at the wrong time that you sell out foolishly. So if you are fully prepared and know you are going to live through bear markets and recessions, you can regard them not only without worry, but also as opportunities…”
I find these words extremely comforting in these present volatile times. What about you? | 
