As the business grows and cash flow is really strong, the manager is happy. The problem is that this is just the start. You need to figure out exactly how the earnings have to be used and how your capital will be managed in a way that will help growth to continue. If this is the situation you are in right now, Greg Lindae talks about some important practices that are necessary in modern capital management for businesses to be competitive and keep growing.
Capital management has to be clearly articulated in order to get the entire team on-board. Front-liners will interact with the core customers every single day so they are a wonderful source of information for the company to know what investments should be made so that customer experience is improved.
Educate the field staff on important things about capital management and encourage communication so you can easily identify investment opportunities that will enhance overall productivity.
CRF (Capital Request Form)
Sometimes managers think it is too mundane to use the capital request form. However, this is a great way to determine whether or not a specific project is a good step forward. You want to identify the projects with expected financial targets and business plans. This also inserts discipline in capital management.
Remember that many investment ideas do not reach a target goal because idea owners do not properly analyze every single detail that is important for the project. Understanding hard and soft costs is vital. This is much easier to do when using a CRF.
The One Store Investment Model
If you want to project potential capital investment upside, financial models have to be built so that you can actually track investments and returns. Financial models normally include different areas for comparison purposes, like existing financials. They also take into account payback time periods, capital costs, internal rates of return and even net money value. The business analyst has to create proformas for the business to use. Benchmarking projects before spending capital is a much-needed filter that has to be applied before estimating potential project returns.
If the organization is larger, it is important to create summary tables for all concurrent projects. This will keep the projects on track and will help manage overall business cash flow. Capital projections are complex but what is normally used is the summary that is generated, usually in Excel form. This helps track investments on a specific period, like quarter or month.
Generally speaking, maintenance capital will not expect returns. Summary has to thus be broken into discretionary and maintenance capitals. This offers a much better visualization of what would actually work as an investment and what would not be a good idea.
Capital investing will offer big pluses for businesses, allowing constant growth. The prudent business owner is going to work hard to both generate profits and manage all the investments that are going to be made. Remember that tracking investments is always something that is necessary so capital management can easily make or break overall business growth.