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Spring is an exciting time in general and for entrepreneurs in particular. The days get brighter, the weather gets warmer and it's a time when you, as well as your employees and customers, feel motivated to set new goals and work towards them. For many industries, spring also marks the beginning of the high season and is a natural time to evaluate the first months of the year, make necessary adjustments to strategy and plan for the rest of the year. There is therefore much to be gained from making investments in spring to lay the foundations for growth. In this article, we will provide tips on investments that are well suited to spring. 

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Premises

Spring is the perfect time to review your business premises. This can range from simple aesthetic improvements to major renovation projects or simply finding new premises. If your premises don't meet the needs of your business, the risk is that your resources are not maximized and your company's productivity is negatively affected. An inspiring work environment will also help to foster creativity and productivity among your employees. For businesses where customers spend time on the premises, the premises become even more important. They are an extension of your company's brand and identity, and a welcoming, inspiring and professional environment can enhance the customer experience.

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Technical tools

Another area worth reviewing is your technical tools. Developments in both hardware and software are moving at a rapid pace and spring is a good time to evaluate whether the tools your company uses are doing the job or not and whether there are new solutions that can automate and streamline processes. Investing in new hardware and software can be worthwhile if the current one still works. But if it means your business loses productivity and efficiency by not upgrading, you need to look at the opportunity cost. Because if the value you lose exceeds the cost of the investment, it means your business is losing out by not upgrading. One area that is particularly relevant to review is your company's IT security to ensure that your systems and data are protected and that you have backups of everything. 

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Warehouse

For any business selling products, the inventory strategy is essential to ensure that there is enough stock to meet customer demand, without being left with unsold products at the end of the season. Analyze your company's data to predict demand, identify the best-selling products and ensure you have enough of them. This way, you can strike a balance between keeping popular products in stock while giving you room to test new products. For businesses with large seasonal variations, this becomes particularly important to plan for the peak season. 

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Campaigns

As mentioned, spring is a time when motivation and optimism are generally at their peak, making it an excellent time to launch marketing campaigns to capitalize on the positive winds. These can be both longer-term brand-building efforts and more short-term sales-driving efforts. It's best to do a combination of both to build loyalty and preference while increasing sales here and now. 

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Expansion

Looking beyond promotions, there are also other ways to grow your business that require a little more planning and consideration. If your business is stable and you want to take the next step, it's a good time to start planning to expand by broadening either your range, your geographical presence or both. However, expansion can also mean exploring alternative business models to complement or replace your current one, or entering into partnerships with other businesses.

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Sustainability

Focusing on sustainability is no longer the preserve of the interested, it is a necessity for all modern businesses. As sustainability legislation comes to encompass more and more companies, there is much to be gained from being at the forefront as a business owner. Investing in sustainability initiatives and working to reduce your company's climate impact doesn't have to mean spending resources on something that won't pay off, quite the opposite. In many cases, it can actually save your business money, make it more efficient and give it a competitive edge over its rivals. So take the time to see if there are opportunities to switch to fossil-free transportation, if there are more sustainable alternatives in your production chain or if you can reduce your waste.

The creditworthiness of your company is very important, as it determines, among other things, the possibilities of obtaining loans and also plays a role in possible partnerships. A start-up business is always a higher risk than an established business, so it is particularly important to be careful with payments if your business is a start-up. Banks and companies also check the owners' finances and you should therefore avoid payment defaults at the private level as well. The personal finances of board members can also affect the risk category of your business. Below, we'll go into more detail on how to increase your company's creditworthiness.

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What do banks and companies look at when determining creditworthiness?

There are many factors that go into assessing the creditworthiness of a company and it is not only the company's finances that are taken into account but also those of the owners and the board of directors. Usually, banks and credit rating agencies look at financial statements, so always make sure they arrive on time. They also look at the company's key ratios and whether there are any payment defaults. As a rule, neither the company nor its owner should have any payment defaults to achieve a high credit rating. The age of the company and the composition of its board are also taken into account.

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After the first annual report, a company's creditworthiness can increase, so start-ups usually have a low credit rating. If you are self-employed, your finances affect your company's creditworthiness. The higher the company's equity, the better its creditworthiness. Other determining factors are the company's profits and margins - a company with good profits over a longer period of time will have a higher credit rating. However, keep in mind that bookkeeping is very important. Also, make sure you have administrative control so that bills are paid on time.

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How to increase your creditworthiness?

As an entrepreneur, you can increase the creditworthiness of your business in a number of ways and the most important thing you can do is to keep your business in order. You need to have a good understanding of your business finances and pay salaries and invoices on time, as well as pay taxes, VAT and employment contributions in a timely manner. You should also review your cash flow and margins, and make sure you don't undercharge to cover all running costs. You should also plan for the low season in your business.

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The financing of your business is also important, with a well thought-out financing strategy you will increase the creditworthiness of your business. Financing should certainly not be used to cover up if your business is not profitable, but it should be used to increase the profitability of your business. It may also be wise to try to replace your financing with a cheaper alternative, or by gathering everything in one place. Last but not least, customer satisfaction is important for your company's credit rating. Satisfied customers will hire you again, which means a steady income, and their good word can bring new customers.

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Conclusions

As with your personal credit score, keeping track of your income and expenditure is a key issue. You should pay bills on time and make sure you have enough income to cover your ongoing expenses. As a business, it's always wise to have a buffer at the start, in case something unforeseen happens. Also, keep in mind that your personal finances and those of your board members can affect your company's credit rating, so check the creditworthiness of those you elect to your board. The better your company's credit rating, the more financing you can get to grow.

Although starting your own business is both fun and rewarding, as any self-employed person can attest, it is not always a bed of roses. Like any living creature, a business has needs that must be met to ensure its growth. And along the way to success, you will make some mistakes.

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Don't be afraid of mistakes

Failure is a natural part of entrepreneurial life, especially at the beginning of your career. By making mistakes and learning from them, you can develop both yourself and your business. Therefore, it is important not to be afraid of failure, but at the same time you should be wary of making the same mistakes several times.

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While you should always look at your failures in a positive light, there are some mistakes that are particularly common among start-ups. By avoiding them, startups can increase their chances of success faster. Below we list seven common startup mistakes and how you can avoid them.

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Weak business idea

The most important step towards successful entrepreneurship is to have a unique and well thought-out business idea. Unfortunately, many companies choose to invest in a business idea that does not have as much potential as they think.

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Therefore, it is important to be clear about what you are selling, to whom and in what way. In particular, examine whether your idea already exists and, if so, how you can improve it to stand out. Don't forget to keep a close eye on your main competitors.

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One tip is to conduct a survey among family and friends before you decide to turn your idea into reality. This way you can get valuable feedback and even ideas for improvements or changes.

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Starting your own business for the wrong reasons

In difficult times with rising unemployment and few jobs, many people are thinking about starting their own business. A common misconception is that entrepreneurship is all about convenience, such as being your own boss and making money on the go.

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Few people are aware of the hard work that running a business requires. It is not uncommon for self-employed workers to work more hours than full-time employees, especially in the beginning. In addition, starting a profitable business takes time and requires patience - something not many people expect.

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If you want to start your own business, make sure you know what is actually required of you, both in the short and long term.

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Economic shortcomings

You will need money to make money, especially in the start-up phase of your business. Many new entrepreneurs think that the income of the business will roll in immediately, but of course this is not the case. It takes time to build up a stable turnover.

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In other words, during the start-up phase, income will be low and expenditure high. After all, this is when you need to make investments in everything from websites and equipment to premises and possibly employees.

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For this reason, it is important that you plan your business budget carefully in advance. How much start-up capital will you need to get by during the start-up period? When will the business start making money? How big will the expenses be?

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If you currently have a job, it may be a good idea to keep it or reduce your hours while you start your business. This will give you financial security, which is particularly important in the start-up phase as start-ups often make a loss in the first few years.

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No business plan

It is not uncommon for entrepreneurs to think that a good business idea is enough to run a business. While the business idea is important, it is nothing without a thorough business plan.

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A business plan should include a detailed description of your idea and your business objectives. It should also include information on everything from competitors and marketing strategy to budget and financing.

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With the help of the business plan, you can easily plan a strategy to develop your business in the desired direction. It can also help you in meetings with potential investors or in negotiations with banks for business loans.

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Read more about business loans and how they can help your business grow at Lånjakt.se.

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Weak digital profile

Digital presence is increasingly important in our digitalized society. Yet studies, such as this one by Clutch, show that only 64% of small businesses currently have a website. This means that many businesses are actually losing customers due to a weak digital profile.

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Whatever your industry, a website is now a must. On the one hand, a website opens up completely new marketing options, such as search engine optimization, while at the same time it can improve your confidence with potential customers.

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You should also be active on social platforms such as Instagram and Facebook, given the large audience there. The more active you are online, the more likely you are to reach the right audience and build a strong brand.

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Fear of change

A common phenomenon among entrepreneurs is that they remain stuck in old patterns, whether things are going well or not. In other words, few choose to develop their business further, even though this can affect profitability.

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If the company is doing well, think about how it can do better. If the results are not as expected, evaluate and reflect to find opportunities for improvement. Maybe you need to change direction? Or maybe it's time to invest in external expertise?

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As an entrepreneur, you should never be afraid of change. Dare to question old patterns and find new opportunities.

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Want to do everything yourself

One of the most common mistakes among self-employed people and entrepreneurs is that they always try to do everything themselves. A common reason for this is because "they do it best themselves".

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Apart from the fact that this attitude can create psychological stress - which in turn can lead to poor performance - it can also slow down the company's development.

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Having the courage to ask for help is important, not only for your own sake, but also for your business. For example, by hiring external consultants with expertise in specific areas, you can reduce the workload effectively. At the same time, you will stimulate business growth as the work will be done faster.

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Don't be afraid to consult people around you either. This is where a wide network can be particularly valuable.

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Executive summary

Running a business is a multifaceted process and sometimes you make mistakes. Never be afraid to fail, but make sure not to repeat past mistakes several times. If you do, it is a sign that self-employment may not be for you.

Are you thinking about investing, but unsure of the return? Or have you made an investment that didn't quite deliver the desired results? In either case, it's good to know what marginally diminishing returns mean, to make sure that one of your company's resources doesn't take out another.

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Every business has resources to contend with. These resources are called production factors and determine how much a company can produce. As an entrepreneur, it is good to have a general understanding of how they affect and interrelate, to be able to plan your investments and for the investments to provide the best possible outcome. There are, of course, a number of factors and variables that affect a company's production, but in general it is usually said that there are two basic production factors that apply regardless of what the company produces - labor and capital. Labor is the employees of the company and what they contribute to production, while capital is what is used in the actual production, such as machinery, premises and cash. How much labor and capital are then invested in production determines how much the firm produces of a good or service.

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The benefits of adding an additional resource

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Adding or removing a unit of a factor of production will affect the quantity produced by the firm. The change in the quantity of output resulting from the change in the factor is called the marginal product. For example, the marginal product of labor is the change in the quantity of output that would result from the increase or decrease of one worker. More often than not, firms seek to increase their capacity, so they choose to increase either the firm's labour or capital. Increasing a factor of production will, in most cases, lead to increased utility for the firm. However, if one factor of production continues to increase, while the others are held constant, it will eventually lead to a decline in the rate of production. The result will be that the benefit, or return, of adding an additional unit of the same factor of production will be less than the previous one. That is, production will yield marginally diminishing returns.

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Marginal diminishing returns are something you should consider when thinking about investing, as they can have an impact on whether or not you get the maximum benefit from the investment. This does not mean that you need to do a lot of economic analysis before every investment you make in the company. It means that it is good to keep in mind how an investment that adds one factor of production to your business may affect other factors. Let's take a hairdressing salon as an example. A hairdressing salon that has four hairdressing chairs, but only one hairdresser, the marginal rate of return will be the same for each additional hairdresser employed until the four chairs are filled. If the salon hires a fifth hairdresser, the marginal return for this hairdresser will be less than for hairdressers 2 to 4. The fifth hairdresser will still provide some increase in output as he can do other tasks and cover for the others when they have lunch or are sick. However, as there is no barber chair for this person to use, the increase in production will be less than it was when the salon hired the other hairdressers. If the salon then continues to employ hairdressers without investing in more hairdressing chairs or a larger space, it will eventually reach a point where production actually drops. On the other hand, if they were to invest in an additional chair for each hairdresser hired, the marginal rate of return would be constant.

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How it can affect your investments

The reality is of course more complex than the example above, but the principle can be applied to most investment situations your company may face. When investing, it is helpful to have an understanding of how your company's resources interact with each other. If you are planning to expand, you can expect that investments in both labor and capital will be required to have the desired effect on your company's output. And if you feel that a recent investment has not quite yielded the results you had hoped for, it may be that the marginal product of the resource you invested in has become diminishing and that you need to balance it out by investing in another of the firm's factors of production as well. Knowing about marginal diminishing returns can therefore help you to plan your investments, identify the needs of your business and then make decisions that will allow you to maximize the return on your investment.

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Does your company need help with financing?

Froda was founded in 2015 with a clear idea - give small and medium-sized businesses the same opportunities to grow as large ones. With our service, we make it easy and affordable for entrepreneurs to invest in their ideas. By digitizing the process, we've made it possible to help more businesses with financing tailored to their unique business and its needs. A smarter business loan, simply put.

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Today, we are one of Sweden's fastest growing fintech companies and have helped more than 15,000 companies grow. Froda is a credit institution covered by the state deposit guarantee and is under the supervision of Finansinspektionen (FI).

For businesses to grow, they need to make investments. These can be financed either by reinvesting the business's own funds, or by raising external capital. But how should you think as an entrepreneur when faced with the choice of whether to finance an investment with equity or external financing?

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Equity capital

Equity is the difference between a company's assets and liabilities. When a company generates profits, its equity increases. For the company to continue to grow and hopefully generate higher profits in the future, it is often a natural choice to reinvest all or part of the profits in the business. This can be done by the company making investments, paying off debt or increasing cash to improve liquidity. Using equity and current income is the most common way of financing investments among Swedish entrepreneurs.

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External funding

Access to capital is a prerequisite for businesses to grow. However, for many small and growing businesses, their own capital is not enough to invest and they need to rely on external capital to finance their investments. There are several different forms of external financing, but for most, business loans are the most common way to finance investments.

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Investing with equity or external financing?

Whether it is best to invest with equity or with the help of external financing can differ from company to company and from investment to investment. It is therefore important to have an understanding of how they differ, how they affect key performance indicators in the company and when the investment is expected to pay off. This will enable you to choose the financing that will allow your company to get the maximum return on investment.

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Solidity

When you invest, your company's equity ratio will increase or decrease differently depending on whether you reinvest the equity or use external financing. The equity ratio is a measure of the proportion of assets financed by equity and is used to describe the long-term solvency of a company. When equity is reinvested in the company, the equity ratio will increase and, correspondingly, it will decrease if investments are made with external financing.

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When investing, it is therefore a good idea to look at the equity ratio of your company. If your company has a low equity ratio, investing using your own capital is preferable. This is partly because the equity ratio will increase and partly because the company's own money may generate a better return than if it were just sitting in the company's account. However, investing with equity is relatively expensive compared to, for example, a business loan, as most entrepreneurs want to generate a higher percentage return than the interest rate that the loan has. If the company has a high equity ratio, it is therefore preferable to finance the investment with external funding.

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Type of investment

The type of investment you intend to make can also have an impact on which financing may be preferable. As mentioned above, reinvesting profits in the company is an important part of healthy entrepreneurship, but a relatively expensive way to finance investments. Investing with your company's own capital also means drawing on your liquid assets, which affects your company's short-term solvency. Therefore, if the investment is made in an asset that can be quickly realized and generate income for the company, equity can be a good way to finance the investment. However, if the investment is made in an asset that will be used over a longer period of time, it is usually better to finance it with external capital. This way you avoid risking the liquidity of the company and thus the short-term solvency. However, it is not only the ability to pay the company's debts that affects liquidity and the type of financing you should choose. Almost all businesses are run for profit and with the aim of generating a return for the owner. Therefore, if your business has both good solvency and liquidity, financing with a business loan, for example, can allow you to both drive growth in the company, while you, as the owner, can use some of the liquid funds to distribute some of the profits to yourself and get a return for your work.

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Invest in time

Another aspect to consider is when the investment needs to be made. Most Swedish companies are restrictive when it comes to debt and choose to use their own capital and save for investments, which is not optimal. If companies save for investments, there is a risk that the investment will be made too late and thus not have the desired effect. When you wait to invest, you also miss out on the expected return while the investment is pending. This means not only that you as an owner miss out on increased profits and potential dividends, but also that the growth of the company is impaired as the return could have been reinvested in the meantime.

When renovations are more expensive than planned, when the unexpected happens, or simply when the company needs an injection to reach the next peak. Then liquidity can become an obstacle to growth.

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What is liquidity and how do I increase it in my company?

Liquidity is a measure of your company's short-term ability to pay, or access to cash, in relation to short-term liabilities, such as accounts payable. In short, improved liquidity means improved ability to pay. For example, if the company incurs unexpected expenses that exceed its short-term solvency, liquidity problems arise.

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Temporary liquidity problems are common

In some industries, revenues vary greatly depending on the season. For example, many service and tourism businesses are fully booked during the high season, only to have hardly any customers at all a few weeks later. As a small business owner, it can be difficult to manage these large fluctuations. And sometimes the downturns are deeper than budgeted for, which causes problems.

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Liquidity problems in the off-season can be doubly problematic, as this may be when you have time to invest - and thus grow in the peak season.

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A loan could be the solution. Think carefully about your needs before you borrow to make sure you can pay back. Borrow only for exactly what you need.

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When the unexpected happens

Small businesses are particularly vulnerable to unexpected expenses. The longer it takes to find a solution, the greater the impact. The café owner whose awning falls down in the middle of the high season needs a new awning immediately to minimize the impact. The restaurant owner with a broken oven needs help immediately.

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If you haven't had time to build up a buffer for unexpected expenses, external financing is an option that gives you quick access to cash when the unexpected happens.

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Sometimes wise to settle accounts payable with loans

Unforeseen events can throw a spanner in the works, and it can be really annoying when you have trouble paying your supplier invoices. A business loan is often a better solution than risking your company's relationships with a non-payment. If you run an otherwise well-managed business, settling occasional accounts payable with a loan need not be a problem.

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Increase liquidity with a loan - but keep this in mind

If you run a small business that suddenly loses turnover or has unresolved accounts payable, you should carefully analyze the reasons for this. Some things to consider could be:

1. How are competitors doing?
2. Is the recession only affecting you?
3. Do you have profitability problems that can be corrected?

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You may need to invest to reach more customers. It could be a new product, new equipment or marketing to an important customer group to increase sales. Think carefully about your needs before you borrow. Are you sure this particular investment is right? Calculate your capacity to repay the loan.