Driver 3: Capital

Capital is the money used to build, run, or grow a business. It can also be referred to as the net worth of a business. Capital most commonly refers to the money used by a business to pay upcoming expenses and to invest or fund new assets and projects. We cover more on capital later in this Pillar for ‘Budgeting’ and provide templates that you can use. If you are not tracking what your business spends its money on, stop now create a spread sheet for the following:

• Employee wages
• Equipment & Inventory purchases
• Sub-Contracted labor
• Marketing expenditures
• Technical Services like IT, Legal and Tax
• Vehicle purchase and maintenance.
• Employee Training Expenses

If you are already tracking expenses then you are likely in decent shape, but venture to analyze it deeper than you are currently doing. Look at each spread sheet and think if the cost is worth its value, can it be reduced, should it be increased?

Consider the following returns that you are getting on each expense and divide these categories into their specific components to home in on your big capital return generators:

• Return on Investments (Marketing, Buildings, Products, Equipment)
• Return on Effort
• Return on People (Each department, Employee)
• Return on Operations (Processes and Procedures)
• Return on Activity
• Return on Opportunity

You can’t get the highest and best yield if you don’t first develop a monitoring, measuring, and comparative system and if you don’t start carefully examining, evaluating, identifying, and observing how your current capital activities perform.

You can then evaluate them each against all the alternative ways you could be deploying that same financial, human, or intellectual capital, time, and people. 

Think about what your returns on your capital are. How could you leverage or change any of them to produce different results for capital?

For example, do you have a process in your company that you have developed that helps you save time and improve efficiency? If you overview your business, you may identify certain capital that could be leveraged further. If you have a great process, why not consider rolling it out into other departments that you have? Or maybe there would be other businesses in your industry that would pay you for access to use your process? There are likely to be opportunities to give yourself leverage and multiply results without changing much about what you do.