Business growth starts with intelligent capital investment

Choosing where to place funding involves planning to produce a good return on investment. Capital assets like metal buildings are always wise choice.

By Darren Sperling

Companies must invest in their business to grow. It’s universally accepted that smart investment pays off for companies in the long run. However, the marketplace is packed with new equipment, emerging technologies and capital investment opportunities that offer the potential to take your enterprise to the next level. How do you choose? With limited resources, you need to make sure you maximize the value of any investment.

After researching the latest equipment from trade shows and studying proposals from different suppliers, the next step is to prepare a comparison of all options to create a financial justification. After all, any choice means forgoing all other possibilities. Many calculations are available to determine the net contribution or net present value of your investment into equipment and capital assets. Regardless of which you use, growing companies quickly see the value of creating future operational capacity through pre-engineered metal buildings. Why rent when you can own a valuable fixed asset that will contribute to financial stability and lower operating costs for decades to come? 

Capital investment requires rational and quantitative analysis

Thoughtful analysis and careful planning can be combined with capital budgeting and investment calculations to determine an approximate future return on investment, how long it will take to recoup the investment, and, in some cases, whether it is a viable course of action or not. It’s worth taking the time because the success of any choice can only be determined in hindsight. We wrote about the best practices and advantages of capital budgeting processes previously. If you haven’t read that starter, please check it out.

Capital investment is the process of investing money in long-term assets to create future benefits, such as increased revenue, reduced costs or improved productivity. It can involve buying new equipment, building a new facility or acquiring another company. At Summit Steel Buildings, we believe pre-engineered metal structures provide the capacity to increase production, revenues and profits, while being a value-appreciating asset that strengthens balances sheets and builds collateral banks require at later stages of financing.

One reminder: like making most business decisions, capital investment involves using formulas based on current market conditions or theoretical situations. It is smart to be aware of the risks when using formulas. They are based on assumptions, meaning other unexpected factors can come into play in the future, and variables (such as discounting factors) can be subjective or manipulated depending on a desired outcome. And similar other business decisions, wrong choices can become expensive mistakes.

Benefits of capital investment:

• Cost savings (reduced material, labor and overhead costs – cost savings can be accumulated over the projected life of the building, which will often exceed the depreciation period).
• Decreased inventory (reduction in WIP and finished goods inventory – if the investment directly allows for the reduction of inventory, then the amount of the reduction can be deducted from the investment).
• Increased flexibility (reduced lead time and product variation – when quantified, the long-term benefits of flexible manufacturing can improve productivity and reduce the cost of the investment).
• Increased output (gross profit of incremental sales increase – the machine could be more costly to run than your existing equipment, but the benefit is realized by increasing productivity).

Risks of capital investment:

• Decisions are long-term and generally irreversible; the costs of changes is significant.
• Uncertainty can lead to wrong decisions, which in many cases can only be understood in hindsight.
• Most formulas do not account for opportunity cost – the value of other ways you could have used the funds.
• Availability of skilled financial professionals or consultants to help is limited and expensive.

Read our other articles:

• “Infrastructure investment opportunities in a recession”
• “Economic slowdowns are a time to plan and prepare”
  

Investing capital is critical for future business success

It’s never a bad time to address the need to allocate funds to infrastructures and building projects, even when the rest of the consumer market and economy seems to be tightening and slowing down. Never forget that recessions are only a temporary period when the overall economy slow before resurging again; it is a normal and expected part of the business cycle. These periods can be beneficial to assisting capital investment due to government grants and other incentives designed to stimulate the economy via capital projects and spending on materials and labour.

Regardless of the state of the economy, investing in operational effectiveness with new production and storage space, or new equipment is important to do. Technology leads to an increase in production efficiency, which results in shifting the supply curve to the right and decreasing the cost of production. More demand and higher profits are always good for companies’ long-term financial sustainability.

Invest in your company’s future through new metal buildings

After completing due diligence, it’s easy to see the value of investing into future growth provided by steel buildings. Additional working space greatly improves long-term success by adding a valuable sellable future asset that injects strength into companies’ financial statement. Do the math and see the return on investment provided by turnkey construction and expanded capabilities only possible with pre-engineering.

When you have done the calculations and are ready to build, please contact our team at Summit Steel Buildings. We're excited to learn more about your business and how we can provide you with a custom building solution suited for your future needs. Call us at 877-417-8335 for a free quote and to receive your preliminary drawings.