Triple Overlap: ROI – The Ultimate Business Mantra

FINALLY, you have reached the last phase of the Triple Overlap, and soon you’ll know how this can scale your business to new heights! But for now, let’s focus on the final element: – Return on Investment.

So, what’s the deal with ROI?

We all want the best deal possible, whether we’re depositing our hard-earned cash into a bank account or considering a new job offer. After all, who wouldn’t want to earn the highest rate of interest, have cash flow projections, or get the most attractive perks and benefits?

You can calculate this by applying a simple return on investment formula:

In a business, it is important to ask questions like:

1. Do I know the actual returns my business is generating?
2. Is this decision leading to positive cash flow forecasts?
3. Have I calculated the cashflow projections of this investment for the next 5 years?
4. Does my 10-year plan show a growing trend in returns and cashflow projections?

If you don’t have the answers to the above questions, you must read ahead!

Rule of ROI

Now that you know what ROI is and the return on investment formula, you should also know the most important rule of ROI.

If the above rule is ignored, like it is most of the time, you are unlikely to see any positive cashflow projections or any profits at all!

But why will this happen? Why will violation of this rule lead to no profits?

Why can’t a business sustainably grow its assets faster than its net profit for an extended period of time? Because eventually, it will run out of money.

Now, it’s important to note that there are times when it’s okay for assets to grow faster than net income—for example, when a business is launching a new product line and investing in the resources to make it a success or a business is going for a backward or forward integration.

But even in these cases, the Rule of ROI still applies: there will be a temporary period where the business isn’t generating profits for its owners. If this growth is strategic and planned, the business owners should have a clear endgame in mind and a plan to secure funding to get through the lean times.

But if your business finds itself in an unplanned situation where assets are outpacing net income, it’s important to take immediate corrective action. Otherwise, you risk running your business (and potentially your personal finances) into the ground. So, make sure to keep a close eye on the balance between assets and net profit and don’t let things spiral out of control.

ROI in Action

Wait, let me explain with an example:

Let’s say your business is increasing its net profit by 10% each year. Additionally, it has been increasing its investment in assets by 12% annually along with that net profit growth. In order to really grasp what’s going on here, you must consider that every Rs.1 of additional assets requires Rs. 1 of additional cash.

Note: The rates are constant over the years.

Assuming, net profit in 2018 is Rs. 1,000 and Assets is Rs. 10,000 of your business. So, the ROI for the year 2018 is 10% (ROI = 1000/10000 x100).

 By the end of the year 2019, your profit will be Rs 1,100 (Rs 1000 + 10% increase), and your assets will be at Rs 11,200 (Rs 10000 + 12% increase).

Now let’s calculate the ROI on this investment for the year 2019.

ROI = (Net Profit/Total Assets) x 100

ROI = (1100/11200) x 100

ROI = 9.82%

By the end of the year 2020, your profit will be Rs 1,210 (Rs 1100 + 10% increase), and your assets will be at Rs 13,440 (Rs 12000 + 12% increase).

Now let’s calculate the ROI on this investment for the year 2020.

ROI = (Net Profit/Total Assets) x 100

ROI = (1210/13440) x 100

ROI = 9.00%

In this case, your investment will serve as the Kumbhkaran in your business. Eventually, it will eat up all your cashflow projections, loans, and personal savings. With every successive year, your net profit will deteriorate and you will have negative cashflow projections, even with constant investment. In contrast, we have not yet considered inflation or global pandemics.

The Win mantra of this Ramayana is: “The investment in your assets should not grow faster than your net profits.”

So, what is the solution? Make sure you have strategically planned the returns i.e., the cashflow projections against every investment made!

Now that you know what the Triple Overlap is and how it can help you mint money, are you ready to put it into action? But, do you still not have the time or the resources for that?

We, at Contetra, have helped hundreds of business owners create 10x value of their investment in the business and overcome cashflow gaps by providing cost effective solutions in a span of just 3 months.

So, what are you waiting for? Set up a FREE exclusive business review with us and take your business to new heights by implementing the Triple Overlap today!

Feel free to book a slot here for a personal one-to-one review: https://calendly.com/reachout-_g/30min?month=2023-09