Whether you’re just starting a new company or trying to grow your current business, making intelligent, long-term financial decisions is critical. Account for lulls and downturns in your business and the economy to continue growing your business and income. This includes branding and marketing your business effectively and investing in innovative technology while spending time and funds on research and development as it relates to your business. An excellent principle is understanding and evaluating your options and getting the most out of every penny. Here’s how to build equity in your business or property.
Location and Property Investment
equity by Mike Lawrence is licensed with CC BY 2.0
For a brick-and-mortar business, there is probably no more crucial decision than where to establish your business. Choosing a proper location allows you to be in proximity to your customer base, closer than your competitors. Another thing is to analyze demographics and how it’s trending and look for areas where demand for your product or service is likely to increase. Purchasing your business property rather than renting or leasing is also advisable. This is the number one way to build up equity in your business.
What Is the Difference Between Business Value and Business Equity?
At their simplest, value and equity refer to dollar amounts at a particular point in time, considering certain aspects. Equity is simply assets minus liabilities. On the other hand, value can be established in a myriad of ways. If your business generates $150,000 of profit per year, you can say the value of your business is $150,000 annually. Think of value as how much you could get if you sold your business.
Brand Your Business
Your business’s brand isn’t just your reputation or image within the business world. Instead, it reflects the desire of your customer base to purchase from you rather than your competitors because they believe your brand is unique or better. Maybe this is from your favorable price point, exclusive product or service including something commonly done or made uniquely, or stellar customer service.
Make Your Marketing an Asset
Marketing is more than just PR, advertising, sponsorships, and social media. A more apt description of marketing is the processes and institutions utilized for communicating, creating, delivering, and exchanging goods, services, or non-tangibles that are valuable to the communities where a business operates. It can also include partners, clients, customers, and all activities related to these ends.
Turn your marketing into an asset by generating constant inbound traffic to your website by continuously updating your content. This way, past, current, and future customers return to consume informational content, such as blog posts, videos, podcasts, and white papers. When establishing a valuation for your business for a potential sale, this traffic influx is a valuable asset to a potential buyer.
Manage Your Capital Strategically
Generating equity can be done by strategically managing your capital and keeping excellent records of your financial situation. There are several areas of focus, such as:
- Creating a definable profit strategy.
- Planning cash flow.
- Maintaining a strong balance sheet.
- Managing accounts receivable.
- Developing operating capital.
- Optimizing debt service.
- Handling investments.
If you continue to increase your cash reserves while keeping your debt down, your business’s valuation and equity will continue to grow yearly. In addition, withholding raises for yourself will help achieve this end.
Diversify Your Portfolio
Looking for ways that logically diversify your business portfolio is a fantastic way to increase valuation and equity in your business. A simple example would be a restaurant owner who expands into a catering business. This is a way to leverage your current capabilities into a new revenue stream. Diversification requires being careful and planning appropriately. When done properly, this can significantly increase your business equity.
Invest Back Into Your Business
Simply put, taking a portion of your business profit and investing back into your business will quickly and effectively increase your equity. Ways to invest in your business include employee retention programs like raises and bonuses, updating or adding new equipment to increase efficiency, or upgrading your facilities. By reinvesting back into your business, you avoid incurring debt for these improvements or diluting your ownership with outside investors.
The downside is that your profits will temporarily decrease if you put the money back into the business. Collaborate with your accountant to add transparency to show that profits weren’t down but reinvested can keep valuation and equity high.
Increase Your Market
Waiting for customers to walk through your door or search you out isn’t a good strategy. Instead, you’ll want to find ways to draw people to your business, including increasing demand. You can increase your market by creating demand where it doesn’t currently exist, such as when Apple introduced the iPad. There was no demand for it, but Apple determined that once people knew what iPads could do, the market would follow, which is precisely what happened. Generate excitement and show potential customers that your product or service will improve their lives.
Reduce Operating Expenditures and Increase Productivity
Purchasing your commercial building and equipment will reduce your monthly expenditures. Also, analyzing your business practices and eliminating or reducing costs wherever possible will help increase your equity. Keeping everything streamlined and optimized will inherently maximize equity. In addition, having streamlined processes will help you weather downturns in your business and free up more capital to grow in the long term. One technique is to constantly analyze mortgage prices and finance options, and keep your expenditures to a minimum.
You can’t be content with the status quo to be truly successful. You must continuously seek ways to improve efficiency, grow your business, and adapt to ever-changing conditions. Keeping abreast of the latest trends and technology related to your business will keep it growing and your equity increasing.
If you’re interested in learning more about building equity in your business or property, contact the financial experts at Castle Development Group. We offer several services to help you increase your profits or start investing in commercial real estate. You can reach us at 817-337-3433 or complete our secure online contact form to get started.
