Tuesday 11th October 2005 AD
FUNDING YOUR FUTURE EXPANSION ~ Part 2
(The 4th principle in the "Discipline to Save" series)

In Part 1 we commented that 50 years ago people didn't borrow money, it was culturally considered a shame; today it is normal, everyone in debt.

Likewise, today's small to medium, privately owned and operated companies (that make up the backbone of the productive, wealth-generating portion of our economies) are all in debt.

We took the time to imagine a typical enterprise of today, a carpentry business with a hardworking owner and a few staff. By today's standards it is doing OK, but we left the story with a bigger problem awaiting the company just around the corner, the same problem facing almost all companies today.

Our carpentry business runs an overdraft, quite normal in today's world, and as usual, the bank has taken the equity in the family home as collateral. The overdraft is all tapped out with the normal month-to-month, cash-flow requirements of the business. The company has minimal cash reserves and its plant and equipment is no-longer leading edge and is beginning to age.

Then, out from nowhere suddenly comes a potential deathblow to the business. A large and aggressive competitor steps directly into our niche ready to cleanup. This new player has far greater efficiencies of scale. It uses the very latest computer aided design and finishing equipment, and can manufacture the same kitchens in less time, greater accuracy and at considerably less cost. While our long-established clients are faithful, the deal is too good for them not to take seriously. What is the bottom line for us? We have to either "Gear Up or Close Down". The free-market forces of 'competition' are forcing our company to expand.

For thousands of years, SAVINGS represented the funding mechanism for future capital expansion. By regularly placing a little aside from current earnings, businessmen and women were able to accumulate and build the means to further increase their efficiency and productivity in the future.

The enterprising businessperson could expand their production and efficiency THROUGH SAVING. The faster they saved, the faster they expanded and the more efficient they became. The more efficient they became, the more they could save, and the more they could save, the more they could continue to fund their future expansion.

Whether big or small, the company or enterprise that saves today can fund its future expansion, whether that expansion is carefully strategized and planned or suddenly forced by competition or other market wildcards.

"The Discipline to Save Funds Future Expansion" has been the key to many mega business success stories in history, and is the forth in our seven "Discipline to Save" principles.

Best Regards - Philip Judge pjudge@anglofareast.com