How do I define what projects are worth investing in? This is a common problem in industry – specifically small businesses. And the answer often isn’t very scientific or consistent.
Theoretically, we always want to use our money in the best way possible – is that a new sign, paid advertising, a more efficient fridge or new windows? Or should I leave everything as is and leave my capital in a savings account? How can I possibly know? Well, it’s not easy.
It could be payback periods. If your customers can’t find your building, that new sign could have a 2-week payback period. Buy that sign! A couple hundred dollars and people can get into your parking lot. What about your windows?
Someone (like Good Habets) can estimate how many dollars you’ll save with replacing windows. If that payback period is 5 years, is that worthwhile? A lot of people use 3 years as a guideline. What if I can finance the windows? What’s the real return on that investment?
If you put in new windows into your building, you get the following benefits:
- Equity in the building
- More comfortable space
- Clean, fresh appearance
- And, obviously, energy savings
If you put $25,000 of windows into your building, how much equity do you immediately get back? $20K? $15K? Or even more if you’ve decreased the expenses enough to leverage the cap rate of the building. Does that mean you have instant payback period, and all the other benefits are bonus? That’s one way to look at it.
What about the increased comfort and the fresh look? How to valuate that? Customers stay longer, employees work harder (and complain less), customers are more likely to come into the building. These things very much matter but are very hard to measure or estimate in advance.
Finally, the energy savings. Well, you might save 5% or 50% on new windows, depending on how bad your current ones are. And depending on (a lot of stuff), that could be a 2 year or a twenty year payback. Taking into account the other benefits, both of these paybacks could be acceptable.
Paybacks matter when you’re putting out your own capital. But what if you’re borrowing to do it? There are lots of options out there to get the capital to do energy-saving upgrades. Suddenly your payback feels less important. We can structure your project to be cashflow positive – you pay less every month than you are now – and at the same time, you get the equity and the other benefits. Consider financing to get effectively infinite returns – without changing your current business model.