I’ve seen many business owners who are ready to grow and expand their business in their existing business or into new product lines or markets but aren’t sure if there is enough demand for their increased investment. Understanding the level of demand in your industry can give clear guidance for future investment decisions. If you own an electric company, for example, you should only invest in a new van and technician if there is adequate demand in the market. This can be difficult to evaluate, but the following tips will provide a basic framework to make investment decisions.
Demand in Utah’s Economy
First, understanding where Utah’s economy stands is the foundation of demand. We are currently on an upswing with unemployment down to 3.5 percent, compared to the national average of 5.6 percent. A continually improving national economy could also increase growth forecasts this year. Such positive economic indicators translate directly into stronger demand, varying by industry of course.
Recognition is probably the most important step. When you are getting more business than you can service with your current resources, you need to consider expansion. Too many business owners work themselves 80 to 100 hours a week when they could easily hire more people and invest in more capital. Although this costs money, you need to consider it from a return on investment perspective. Will investing in these new resources be more efficient than killing yourself week after week without the ability to grow? This can be easier than you think to overlook, so the important thing is taking the time to stop and evaluate your operations.
Also, look at your market and do some due diligence. Where is the demand coming from? Who are your main customers and why are they demanding your product or services? In fact, just ask your customers this directly. “On behalf of Something, Inc., I’d like to thank you for your business. If you don’t mind my asking, what is it about our product/service that is different or keeps you coming back?” Customers will appreciate this because it shows that you have a personal interest in their needs, helps you gather information, and you can identify if demand is likely to stay steady or increase. It can also be very telling if in your customer interviews they complain of increased competition for their product or services by more Utah companies. That can point to increased demand for your product for the foreseeable future.
Taking the Step
Once you have established that there is sufficient demand, consider investment options. Run some models in excel and determine what kind of cash flows new property, equipment, or staff will generate and how that fits in with your current business model. This part can be a bit more difficult and requires some time. The services of an outside CFO can be helpful. Feel free to contact Preferred CFO to consider your options.