Should I invest my free cash back in my business or take it out for personal use?

When scaling your business, you need to have a personal balance sheet that is strong enough to be attractive (“bankable”) in any banking environment. Once your personal balance sheet is strong enough, you have to look at the return of dollars deployed.

If you decide to put the money back into your business, make sure you’re getting a greater return on your investment. Many people think putting money back in their business is always the right answer, but never actually measure the results of that investment. – which is a loss in itself.

So many times people make capital improvements to the business (updating facility, entering a new market, updating electronics) because they have excess cash, but doesn’t drive more business. Versus, pull it out and put it on your balance sheet. If you can’t get an expected return on that investment (whether it be debt reduction, buying a piece of equipment, hiring new employees) that you can measure the return, then pull it out and invest it to improve your personal balance sheet.

It’s like buying a car. If your car works fine and is consistent with your brand, why would you ever buy a new one?

As rare as the situation that the personal investment outweigh the business investment, but rather in the absence of a high-quality business investment then pull it out and put it on the personal balance sheet. 

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Should I expand my business into different markets?

Expanding into different markets can pay off, but only take the leap if you believe there is a strong return. Every business move you make needs to be strategic, with ROI top of mind. If you’re going to grow geographically, enter the market with lowest cost structure.

A lot of times people think about going into big markets [New York/LA/Chicago] when in reality they could enter a market with a lower cost structure [Indianapolis/Louisville/Pittsburg]. Those markets are often seen as less “sexy” are less expensive markets and may still provide a better return on investment.

Now, there are some businesses that require you to be in those big markets, but for the most part entering into other geographical markets is usually safer and done at a less expensive cost structure. 

Rule of thumb: Don’t grow for the sake of growth. You need to think about every business move as opportunity.

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Should I expand my business into another industry?

For growth concerns and considerations, your return on investment needs to be top of mind.
It rarely makes sense for an entrepreneur to diversify into other industries simply because they lack the skillset and/or expertise. A mistake entrepreneurs make regularly is think that because they are successful at one business, that those skills then transfer to other businesses. Now granted, there are people that have that gift (the Elon Musk’s and Richard Branson’s you read about in the news) but the truth of the matter is very few people really have the ability to do that. Most folks are better off at deepening their expertise around what they do versus widening their scope.
Generally speaking, most people can grow their businesses and stay in their area of expertise with a greater return on their investment. And historically, very few people have the ability to transition to another area outside their expertise.
So for you, is it worth the return?
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