With Interest Rates So Low, Where Should Entrepreneurs Invest Today?
Virtually unreported, a silent thief is now wreaking havoc on the savings of millions of Filipinos. That silent thief is inflation. With interest rates below the rate of inflation, you are in fact losing money in your time deposits. Fortunately, at this time, inflation is quite low and so the negative effect is not large. Still, in a decade or more, the damage would be substantial enough to cause more and more people to seek better returns than plain time deposits.
Investing is a complex field and not my expertise, but I wish to share my perspective as an entrepreneur. Most books on personal investing have not focused on the factors affecting a business person’s investment decisions. When a person earns most of his income from a business, there are fundamental differences that affect his financial planning.
Some financial advisers may not agree with investing more in your own company beyond a certain percentage of your assets due to their belief in diversification. Their position is basically true; it is obviously dangerous to put all your eggs in one basket. But a closer examination of the risks involved may justify a more generous allocation to your business endeavour.
What I will now discuss is not a complete investing guide for entrepreneurs, but selected tips that can prove useful. I have seen many successful entrepreneurs apply these techniques:
Buy out your landlord. I have often read that buying the property where your business stands is a drain on resources that is better used elsewhere. Nevertheless, there are certain circumstances that will justify purchase of the property. One is to secure the location of the business. It may happen that your landlord may decide not to renew your lease. Worse is if he suddenly takes an interest in taking over your business. Retailers are particularly affected by this since a good location is crucial to them. To avoid too much concentration of your assets in one company, you may have the property in your name or in another corporation (if your business is a corporation).
Be your own supplier. If your requirements are large enough, there are cases where it would be advantageous if you can manufacture or import your own supplies or inventory. This is to improve your profit margin and have better control over quality.
Negotiate cash discounts. If you are currently on a credit line with your supplier, it may be possible to negotiate a discount if you pay in cash. Many will resist this suggestion as they may think it may be difficult to regain the right to pay on terms; also, the length of the terms given is often bragged about as a sign of their clout with the supplier. Some think that only new or unreliable customers should pay cash.
Invest in inventory. This is a common strategy among businessmen that is often condemned by some advisers as too risky. The most common argument is that it bloats inventory, which ties up capital increases and risks. But there are ways to mitigate this—like having sufficient insurance. For many businesses, it is possible to invest in inventory if they anticipate a price increase. For example, if a certain supplier has given notice that the next order would be 10 percent higher, it may be profitable to get substantially more than your usual order. Another way to earn better is to buy in bulk if it is possible to obtain volume discounts. Finally, you can study if increasing your product line is now feasible considering the low interest rates.
Buy more efficient equipment. You can turn low interest rates to your advantage by acquiring machinery that can expand your capacity or reduce your operating expense. Both options can bring far more to your bottom line than a few percentages.
Invest in training. We usually see only the visible and tangible assets in our balance sheet. It is time to assess if your manpower is performing at its best. Studies show that proper training is essential to develop your work force to their maximum capability. You cannot rely on on-the-job experience alone to teach them all they need to know. The cost of training is negligible compared to the benefits that will be acquired.
While people look for better returns in speculative investments, there are usually more opportunities to gain larger returns in your own business with far lesser risks. The next time you hear of a friend making a killing on his investment, look first in your own backyard. With a little more effort, you can strengthen your business and get better profits. Furthermore, you would be able to focus on managing your business rather than be distracted with investments that are not really within the realm of your expertise.
*Originally published by the Manila Bulletin. C-6, Sunday, April 21, 2013. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.