Rockets Founder and CEO Sean Barber is back in this podcast to further discuss business insights to growing a business.
This time, he joins broadcast journalist Rofhiwa Madzena to analyse risk and return on investment and how this is affected by the price-earnings (P/E) ratio.
The businessman describes return on investment as a rate of return that is highly affected by time — as the saying goes, “time is money”. He says if you are an entrepreneur who wants to make a certain percentage of returns annually, you should understand how much you need to first invest in the business and then calculate the length of time, in months or years, it will take for you to get your initially invested money back.
Having a timeframe for your ultimate goals is described as a normal business risk, as there are no guarantees that you will realise your returns in the exact time you set for yourself. Although it might sound scary to an aspiring entrepreneur, Barber says risks are an entrepreneur’s bedfellow and should rather be embraced.
Experiencing failure does not dictate business failure, as long as the founder continues fighting, but being too thrilled by taking risks can lead to drastic mistakes.
The podcast also chews over the P/E ratio, which is considered to directly affect return on investments. It is described as the relationship between the company’s share price and earnings per share.
It also determines the period it will take to get your money back, once you invest in a certain company or inject cash into your own business.
Making positive returns does not mean you are ready for emotional spending. He advised that all entrepreneurs should pay back all the money they borrowed, pay their rent or bond, and pay salaries and suppliers.
Spending on anything else before sorting out these categories will drag a successful business down to its knees.
Ego and emotional spending will not build a business that South Africa can bank on.