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How calculated are you on capital improvements?4/9
Be it a restructuring, a shop space rebalancing, a new machine, a new employee--what goes into you thinking "this could be good" to actually investing/doing?
Where do you balance in terms of gut vs preemptive measurement?
I'm a novice but desiring to build a specific size of business so this is a constant question for me. My main concern is always
Stable and accurate cash flow predictability is important to have for all sorts of good reasons, and it plays half the role in looking at capital improvements. This more of a 'known known'.
The other half is trying to determine what the considered change will do for labor/material savings. This is a 'known unknown' that will involve more guesswork and a bit of intuition that one could ever tolerate on the cash flow side. Adding an employee is accurately predictable for us (cost-wise), a machine or process is less predictable.
It is difficult to read or hear about someone doing things in what appears to be a Neanderthal method, when it is obvious that an investment in some basic equipment would transform the process for the better. Often, the equipment has already been 'paid' for - in lost labor costs - but the individual does not have the equipment.
I have a long list on my desk that has the next top items I think we would need. This list is constantly changing as things wear out, or other things take precedent. We'll go this way if we need to grow, we'll do this if that old table saw gives out, we wil be forced to replace the mortiser if/when it gives out, probably with little or no warning.....and this would always be great to have....
This reminds me a bit of the "talented musician" debate.
I am at the point where I can hear a person play any instrument and tell you if they are classically trained. That said--don't forget the Jimi Hendrix's of this world.
I worked for a guy a while back that was the best salesman I have ever met. Physique? Short, scrawny, bug-eyed, looks sketchy, arms loaded with tattoes, greasy hair. But man alive, could that man ever run a business. From sales to quote to deliverables to set-up--almost all of it. (he however forgot the humans--they revolted, unionized, and ran his company to the ground in less then a year).
The general consensus is to know what part of the business cycle you are in and invest into a rise in the business cycle.
You would have to know your market and where it was at, in the cycle. Also knowing the demographics of your market helps, and what that demographic buys.
The Fed has made low interest loans available that help, that will not be there forever.
Another is to look at your own business' sales and look at a graph showing YOY going back a few years. On the same graph look at the 3 months of sales using a rolling average. The idea is to calculate the rate of change in your own own sales. as the rate of change is presient. So if your graph is going up steeply or down steeply or slight decline or incline it is predictor of the future. This from ITR economics, the Beaulieu brothers.
I generally look for a steep uptick in sales and production. And then investigate very thoroughly to determine EXACTLY what caused the steep uptick.Then if you have extra cash, IOW paid all of your bills, invest in only that thing that caused the steep uptick in sales. BTW this is a make break for a business, do it wrong and you will shoot yourself in the foot, do it right and you will stabilize that uptick into a sustained floor for your sales.
My goodness Pat, I am a PIA...
So Beaulieu Bros is good and all--but it forgets one thing. Comes back to the Elliot principle you were mentionning in another tread.
So you can grasp a general trend for sure and keep to it. But what about crimes of opportunity? And fallacies of enthusiasm?
If the general attitude about economic health infuences your dollar bill vallue, what about a mirco level on this one? Where you are selling a good for a somewhat sentimental value despite what the economy is doing?
Comes back to boats. Everyone knows boats are holes in the water that you sink your money in (did this frenchy get the expression right?).
But people buy em. All day long. They are not minor investments either. Wood boats, concrete boats, no matter the reputation, people buy em.
This romanticism has a role in buyer behavior. You can make a half-rolling shop and still sell it, if it feels good at the surface--I've seen it.
Now that's something a person does with gut. Gut has room here (not all the room, but some).
PS--I do like the person who goes down the rabbit hole with "I want to buy x machine. What does it cost? how long would it take to pay for itself?"
Do what ever you want, but it would advise against it.
Hah!! But I'd argue that your anti-trust is a voucher :P
btw you're still invited for beers and backyard gloved brawling (kick boxing gloves--not pansy-pants boxing gloves). If you survive, maybe I'll let you look at my neuroscience textbooks... if you agree to pay attention to the highlighting ;)
So many variables to this. We've worked with small businesses to large corporations. They big guys have consulting teams to go over minute details.
The successful small(er) shop guys usually buy equipment and improve as they see fit.
The guys that find themselves in difficult situations over extend. I often hear their thought process is, "if you build it they will come". Which is true, but they didn't invest in something else... again many variables.
Very curious to know how your venture went, as it seems it has been some time now.