Waterbury Financial Strategies Inc CEO / Founder Rahim Thawer post this week “Entrepreneurs’ Survival Kit for 2009: Capital Budgeting Decisions with Limited Budgets.”
The world is currently experiencing a chaos in not only the financial sectors but all industries across the line and the Entrepreneurs of tomorrow will have to embrace the fact that the tough times are not over just yet. A number of economists have formed their theory and methodologies in regards to this recession as to when it is going to be over, but the reality is, there are too many factors that contribute with too many unknowns. If you have ever worked on any operations research models, you will know this is more like a simulation that has so many unknowns and the results are based on numerous probabilistic models.
Well, the good news is, the entrepreneurs get to allocate the success rate associated with the businesses based on their custom formed models. Capital budgeting is a key to success for every venture so long as it is properly managed in these critical times of economic hardship. This is one of the overlooked activities that needs to be addressed and looked into it in much depth. A thorough evaluation of multiple investment alternatives needs to be addressed alongside with merit analysis for every entity within a business.
One of the red flags that we see when evaluating these businesses is that all the entities are financially dependent of other constituencies and if one fails, then it creates a domino effect pulling the rest down. This is the very reason all projects need to be mutually exclusive, same should apply to investments and other bodies. The most efficient and compelling way to proceed in a capital rationing latitude is to select the group of entities or activities that maximizes the total net present worth of future cash flows over a required investment outlays.
The sooner this model is utilized, the sooner some of these businesses will see a light at the end of the tunnel. This is a critical element to success for most businesses and it cannot be overlooked. This applies so well today, especially with banks not lending.
My Thoughts: Understand the Cost of Capital and the investment scenario to form applicable strategies.
Rahim Thawer /
CEO of Waterbury Financial Strategies Inc
http://www.waterburyfs.com
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