Stephen Tolger, CPA’s Post

Just because a business appreciates over time doesn’t mean it’s a good investment…   You have to also account for capital intensity.   If it takes too much capital to build a $100M business, building a low capital intensity $5M business could be a better investment.   The best investments create the most value relative to the amount of invested capital.   The takeaway?   The “sexy” 9-figure valuation isn’t always where the best returns are.   Oftentimes, 7-figure low capital intensive niche businesses are where riches can be made.

Just because a business grows in value doesn’t guarantee it’s a wise investment... You must also consider capital intensity— If it takes massive amounts of equity capital to build a $100M business, then a low-capital intensive $5M business could actually be a smarter investment. The best investments create the most value relative to the amount of invested capital. The takeaway? The “sexy” 9-figure valuation isn’t always where the best returns are. Oftentimes, 7-figure, low-capital-intensive niche businesses are where the real riches lie.

Capital expenditure (CapEx) decisions are some of the most impactful a business can make. They shape the company's future by affecting its ability to grow, compete, and remain profitable. By carefully evaluating potential investments and their impact, companies can ensure they are making choices that will drive growth, profitability, and competitiveness. Here's why CapEx decisions are so important: - Long-term impact: CapEx involves investments in assets with lifespans of several years. A poorly chosen investment can lock a company into outdated technology or inefficient processes for a long time. - Growth and expansion: CapEx fuels a business's growth. Funds are used to buy new equipment, expand facilities, or develop new products, all to increase production capacity and market reach. - Efficiency and profitability: Smart CapEx decisions can improve efficiency by allowing a company to automate tasks or streamline operations. This can lead to cost reductions and higher profits. - Competitiveness: Investing in cutting-edge technology or equipment can give a business a significant edge over competitors who are slow to adapt. - Financial health: Careful CapEx planning ensures the company has enough capital for both present needs and future investments. #capex #capitalexpenditure #businessinvestment #financialplanning #strategicdecisions #business #finance #economics #management #entrepreneurship

If someone invests in your business, they are an investor. If the investment gives them equity in the business, then they are a shareholder. If the equity stake gives them a seat on the board of directors, but they do not run the business, they are non-executive directors. The fact that they put money into your idea is already effort. That money did not come from nowhere. There was work involved in gathering the sum required, conducting the due diligence, and negotiating the terms of the investment. You needed their funds just as much as their funds needed a viable business proposition to invest in. Investors receive a dividend out of the profits of the business. If the business does not make a profit, they receive nothing. If the investor seeks guaranteed a return regardless of the performance of the business, that is not a deal you want. The process is to seek an investor. Conduct due diligence on the investor, their preferences and their reputation. Get a pitch meeting. If you make it past all that, and they decide to invest, then you negotiate the stake. Before receiving funds, conduct a due diligence on the source of wealth and source of funds. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

📈Balancing quality and growth in business📈 Higher interest rates has meant securing funding to invest in growth is harder for businesses – so you need to place emphasis on corporate quality as well as the narrative in numbers. Quality comes from the factors that drive the long-term value in your firm, such as a healthy cash flow, quality of earnings, agility, innovation and intellectual property, in addition to strong profits. To improve quality, you should look at what makes your business attractive to clients and investors, and the processes and strategies that will build on this. #smallbusinessowner #sme #financialplanning #wealthmanagement https://lnkd.in/epGCTDPM

If someone invests in your business, they are an investor. If the investment gives them equity in the business, then they are a shareholder. If the equity stake gives them a seat on the board of directors, but they do not run the business, they are non-executive directors. The fact that they put money into your idea is already effort. That money did not come from nowhere. There was work involved in gathering the sum required, conducting the due diligence, and negotiating the terms of the investment. You needed their funds just as much as their funds needed a viable business proposition to invest in. Investors receive a dividend out of the profits of the business. If the business does not make a profit, they receive nothing. If the investor seeks guaranteed a return regardless of the performance of the business, that is not a deal you want. The process is to seek an investor. Conduct due diligence on the investor, their preferences and their reputation. Get a pitch meeting. If you make it past all that, and they decide to invest, then you negotiate the stake. Before receiving funds, conduct a due diligence on the source of wealth and source of funds. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

How to Evaluate a Private Equity Investment or Your Own Business 💡 I have done a couple of valuations of small business in the last month and I thought I would share the basics on this. When it comes to private equity investments or reinvesting in your own business, 🚨understanding the true value🚨 is crucial for making informed decisions. Whether you’re seeking growth, stability, or profitability, having a clear evaluation process helps you gauge whether the investment is worth pursuing. Here are the 👏top 4 methods👏 to evaluate any business (there are many more but these are the ones I use more often): 1️⃣ Revenue Multiples: A quick way to compare the business against others in the same industry. Multiply revenue by industry standards to estimate value. 2️⃣ EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This measures operational performance and cash flow potential, crucial for determining profitability before financial obligations. 3️⃣ Discounted Cash Flow (DCF): DCF estimates future cash flows and discounts them to present value, providing a more long-term view of a business’s financial performance. 4️⃣ Market Comparables: This method looks at how similar businesses are valued, giving insight into current market conditions and competition. Each method offers unique insights into the sustainability and growth potential of a business. By understanding these, you can make better investment choices and grow your wealth strategically. Stay tuned as I dive deeper into each of these methods in future posts! 📊 #PrivateEquity #BusinessValuation #InvestmentStrategy

If someone invests in your business, they are an investor. If the investment gives them equity in the business, then they are a shareholder. If the equity stake gives them a seat on the board of directors, but they do not run the business, they are non-executive directors. The fact that they put money into your idea is already effort. That money did not come from nowhere. There was work involved in gathering the sum required, conducting the due diligence, and negotiating the terms of the investment. You needed their funds just as much as their funds needed a viable business proposition to invest in. Investors receive a dividend out of the profits of the business. If the business does not make a profit, they receive nothing. If the investor seeks guaranteed a return regardless of the performance of the business, that is not a deal you want. The process is to seek an investor. Conduct due diligence on the investor, their preferences and their reputation. Get a pitch meeting. If you make it past all that, and they decide to invest, then you negotiate the stake. Before receiving funds, conduct a due diligence on the source of wealth and source of funds. Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

A corporation, whether publicly traded or privately held, generally has more "lead goal power" or ability to attract resources, talent, and achieve large-scale objectives compared to a sole proprietorship or a non-incorporated private business. Here's a breakdown: ### Advantages of a Corporation: 1. **Access to Capital**: - Corporations can issue stocks to raise capital, making it easier to secure funding for growth and expansion. 2. **Limited Liability**: - Shareholders' personal assets are protected from business liabilities and debts, encouraging investment. 3. **Credibility**: - Being a corporation can enhance credibility with customers, suppliers, and investors. 4. **Perpetual Existence**: - Corporations exist independently of their owners’ lives, ensuring longevity and stability. 5. **Structured Management**: - Clear management hierarchy (Board of Directors, CEO, etc.) which can facilitate strategic decision-making. 6. **Attracting Talent**: - Corporations can often attract highly skilled employees with competitive salaries, benefits, and stock options. ### Private Corporation: Yes, you can have a private corporation. This is a type of corporation that does not publicly trade its shares and typically has fewer shareholders. ### Lead Goal Power – Corporation vs. Private Business: 1. **Corporation**: - **Higher Lead Goal Power**: Because of its ability to raise capital through stocks, enhanced credibility, limited liability, and structured management, a corporation typically has more influence and capability to achieve large-scale goals. 2. **Private Business (Non-Corporation)**: - **Lower Lead Goal Power**: A sole proprietorship or partnership might have limited access to capital, higher personal liability, and less formal management structure, which can restrict its ability to scale up and achieve large goals. ### Conclusion: A corporation, whether public or private, is likely to have more lead goal power compared to a non-incorporated private business due to its structured financial and management systems, ability to raise capital, and greater legitimacy in the market.

When I invest cash into a business, I want to be able to get my cash out as soon as possible. If I buy a business for $2 million and the business generates $2 million in free cash flow over the next two years, that’s a phenomenal payback period Most investors underappreciate the value of a fast payback period. Forget about the long-term upside. Focus on returning capital to yourself ASAP. It de-risks your investment. And allows you to re-invest that capital.