It can be hard to know where to invest and where to save as a small business owner.
As a qualified accountant, I used to believe that the secret to big profits was to keep your costs low. And, of course, it is important to keep a close eye on your expenses as it can have a direct hit on the bottom line (after all, sales – expenses = profit).
However, something I’ve learned over years of helping business owners to scale rapidly, is that strategically investing in your business is actually a faster way to achieve growth.
So, how do you know in which areas to invest when operating on limited financial resources?
Every business is different, but some common things to consider are:
How much money are you expecting to make back?
A return on investment (ROI) is how much money you anticipate that you’ll make back on the money that you put in. For example, you might choose to invest $2,000 a month on marketing, with the intention that it will return $5,000 of sales per month.
When are you anticipating you will get the return?
Some of the larger corporates I used to work for had a much longer ‘breakeven point’ (i.e. the point in time they would recover the cost of the investment) as they had a larger capital base. They could build assets not expecting to recover the cost of the spend for over five years. Many business owners don’t have the capacity to wait that long to get their money back.
Some investments can deliver a faster return – such as investing into marketing, or sales, while other investments (such as branding) might take longer before you see the upside of the investment.
A great tool to use for making this decision is a budget. In a budget, you can map out the upfront investment, then forecast the potential sales uplift over time.
What is your appetite for risk?
There are no guarantees when it comes to investments. Some business owners are happy to put more ‘on the line’ while others might prefer to take a more conservative approach to growth. Take a moment and consider where do you sit on the risk spectrum?
This then can help you figure out the resources that you have available to invest, or how you intend to fund the expenditure. This is why understanding your risk profile is important… are you willing to reduce your savings account right down? Would you be willing to take out a loan to fund the expenditure?
What is right for some business owners might not feel aligned for others.
However you choose to invest for growth, the key thing is to do it with intention. To be clear about your goal, and to track your progress against your plan.
A wildly wealthy business is possible for you – even on limited financial resources. You just need to decide how willing you are to lean in to growth opportunities.
