Ways to invest to help your small business thrive
Not all businesses have an enormous profit to invest in their business but there are other ways you can invest in your business. If your business is making a healthy profit it may be a financial sacrifice, but if you invest in your business it’s likely you’ll see your business progress much faster than if you simply pocketed your earnings. Investing funds back into your small business can accelerate growth.
Where does the money come from?
To grow your business, you need to fund it with cash but where do you find it? Cash could be available to you via finance or a loan, you could contribute your own private funds, or you could use retained profits. Business profits available to invest in your business is your free cash flow.
Specifically, free cash flow is what’s left from your business’ profits (sales less cost of sales and other expenses), once you take away obligations like tax, capital repayments, working capital and loans payments. Any leftover cash is available to be reinvested in the business if you choose.
Other ways to invest to help your small business thrive
Not flush with cash? What else you can offer your business? It may not be making much money right now, and you may have none to spare. Think about other ways you can invest. Cash is not the only value you can put into your business. Brenton Hayden, writing for Entrepreneur says spending time networking is a great investment in your business1. You can invest tine, experience and knowledge into your business to assist with growth.
Have a strategy for your investment, don’t just throw money around
If you do plan to invest cash, it’s important to have a plan for reinvestment. Investing with a strategy will have better long-term results than just investing a percentage or throwing money into the bank account without a solid idea on what you’ll use it for1. Many businesses start with advertising and marketing as the first place for their investment dollar. Others invest in quality staff. What you choose should depend on what your business does and what would benefit its growth the most.
Do you simply need more customers? Then marketing is a good decision. However, if your struggling with capacity, then a bigger team is where your money should go. If you’re struggling to keep up with demand, then more manufacturing equipment or a bigger investment in inventory might be needed.
Don’t just blindly throw money at your business, do some calculations first, decide on the return on investment you’re seeking. Balance how much you’re planning to invest with the expected return on investment. Set goals so you can track your progress. This sort of analysis can be quite technical and it’s an area where a business adviser can really add value.
The best investments are not always the most obvious
Some investments for business are easy to choose, like those we mentioned above. However, streamlining infrastructure and processes can significantly affect your bottom line. Does your business double handle invoices or data collection? Reviewing the processes of your businesses can assist in understanding whether they are being completed in the most efficient way. At this time, it’s important to understand that even double handling data entry for each invoice can have a big impact. If you need to add invoice data to one system and then use another system to create the invoice and essentially enter the same data twice, it might not seem like much time but when you work out the time annually you’d be surprised. For example, if it takes 15 minutes to re-enter the data and you have 100 clients that transact with you twice a year – that’s 50 hours of time that could have been spent elsewhere. As your company grows the number of hours wasted on this double handling grows exponentially also.
Consider where your cash comes from and where it’s going
Knowing exactly what to invest in is a decision business owners must carefully consider. The Business Advisers at Modoras can help you with this, guiding you towards an investment choice that will have the best chance of making a positive difference to your business. They can also help you create the free cash flow you need to feel confident about reinvesting your profits.
Over to you
Is your aim to reinvest some of your business’ profits? How do you decide what to invest in? Let us know in the comments.
- Entrepreneur: Brenton Hayden from Renters Warehouse, Dec 2014 Warren Buffett knows it. Reinvesting in your business can lead to huge growth
This article is published by Modoras Accounting (UMG) Pty Ltd ABN 81 601 145 215. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.