ROI – What Can You Control? / by

posted in Blog tagged with contingency, Return on Investment, risk, ROI

Return on Investment (ROI) is a measure of the economic return an investor or buyer requires for a given investment.  In the case of your business, the investor or buyer wants to know they’ll receive a specified return in a specified amount of time following a projected timeline and milestones.

ROI is directly related to the risks inherent in running a specific business in a specific industry. As you built and grew your business, you absorbed these risks, and accepted them as a cost of doing business.

But did you ever track those costs? Did you track the impact on your ROI? Can you measure the effect – good or bad – on your sales growth, market penetration,  profit margin? Can you quantify them?

Som ROI – What Can You Control?e of the variables that effect ROI are within in your control. Some of the variables are outside your control but still impact your business, your economics and your ROI.

Everything that can change your ROI, has a direct effect on what a buyer will perceive your business is worth. It’s your job to showcase your business in the best light for the buyer to say yes on your terms.

Here is a Range of Risks buyers will assess. How well does your business handle each one? How can you sell that position to a buyer?

  • Economic Changes
    • Economic downturn – Economic slowdown
    • Rising interest rates
    • Decrease in target market spending
  • Industry Changes
    • Regulatory / government changes
    • Increased competition
    • Threat of foreign entrants
    • Expansion into foreign markets
  • Business Changes
    • Regulatory / government changes
    • Loss of key customers / vendors / team members
    • Substitute goods / product obsolescence
    • New opportunities / new product lines
  • Natural Disasters
    • Earthquake
    • Hurricane
    • Flood
  • Personal Changes
    • Health problems
    • Divorce
    • Exit Timeline

To maximize ROI to a buyer, you must have contingency plans in place for these key risks. To demonstrate that value to the buyer, be sure they are all documented, not just in your head. That’s how you’ll command the full value for your business and come to the negotiating table from a position of strength.

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