Proven Investment Strategies Every Small Business Owner Should Know

As a small business owner, it is crucial to have a comprehensive understanding of how to invest your capital wisely. By carefully considering different investment options and diversifying your funds across various assets, you can not only strive for financial stability but also potentially maximize returns. This strategic approach to capital allocation can help mitigate risks and ensure a sustainable growth trajectory for your business in the long run.

Let’s explore the investment strategies that will empower your business and drive your financial success.

Hire an Accountant

Avoid doing your own accounting. As your business expands, managing finances becomes more intricate, leading to the likelihood of spending excessive time deciphering earnings and expenses come tax season. Not only does this help you evade inevitable headaches, but it also grants you more time to focus on growing your business. However, if you opt not to hire an accountant, you can still benefit from these accounting tips to enhance your business.

Invest in Property

If your business doesn’t have plans to relocate in the near future, it’s worth considering investing in a property to serve as your business location. Owning your own property not only saves you on rental expenses but also grants you full control over your office space. Similar to residential real estate, commercial properties have shown appreciation in value over the past decade. When searching for a property, it’s crucial to take various factors into account, such as the proximity to your employees’ residences and the future needs of your company.

Diversify Your Investments

Having a deep understanding of your industry is valuable. However, it is wise to avoid the familiarity bias and instead focus on diversifying your investments, rather than solely relying on your field of expertise. One effective approach is to create a well-rounded portfolio with limited investments in your own business sector. Seeking guidance from a knowledgeable financial professional can be beneficial, or you can construct your portfolio independently using broad-based index funds or exchange-traded funds.

Open a Certificate of Deposit

Many savings or checking accounts offer minimal, if any, interest. If you’re risk-averse, consider opening a certificate of deposit (CD) to save money at a higher interest rate. Your CD is insured by the Federal Deposit Insurance Corporation (FDIC). Keep an eye out for special promotions from your financial institutions and set up a short- or long-term CD to secure funds for your business’s future.

Invest in Product Development

By investing in product improvement and enhancement, you can significantly boost your revenue and profit. Start by analyzing your company’s top-selling products and expanding on their offerings. Gain a deep understanding of your customers’ needs and pain points, and devise strategies to address them effectively. While it may entail a substantial initial investment and require some brainstorming, the returns on this investment will undoubtedly be worth it.

Consider Savings Bonds

Individuals and businesses have the opportunity to invest up to $10,000 annually in Series I savings bonds. These bonds are specifically designed to keep up with inflation, making them an attractive option for investors. Since their inception, they have consistently offered higher interest rates compared to many certificates of deposit (CDs) and money market accounts. One key feature of savings bonds is that they must be held for at least one year, and if you need to redeem them within the second to fifth year, there is a three-month interest penalty. Despite this, savings bonds provide a relatively low-risk investment option with a solid rate of return. They can be a valuable addition to both your corporate and personal savings strategy, offering stability and potential growth.

Set Up Automatic Investments

A straightforward and effective investment strategy for small business owners is to establish automated investments into low-cost index funds. As a business owner, your focus is primarily on your company, leaving little time for researching and evaluating individual stocks or bonds. By automating investments into low-cost index funds, you can generate stable long-term returns. This approach also allows you to maintain an objective stance towards your investments, as there is no need to monitor day-to-day performance when you are not making daily decisions.

Build an Emergency Fund

More than half of American households lack emergency savings that can sustain them for more than three months. Similarly, many businesses only have a few weeks’ worth of cash reserves. If you haven’t already, it’s crucial to establish emergency fund accounts for both your business and personal needs. By doing so, you can avoid dipping into your long-term savings or investment accounts whenever you face an urgent financial requirement. Personal emergency funds can be utilized for medical expenses or urgent home repairs, while business emergency funds protect against unexpected disruptions like pandemics or natural disasters affecting your operations.

Hire a Financial Advisor

One of the biggest challenges small business owners face is how to manage the fact that much of their net worth can be tied up in their own business. While diversification is a critical part of normal investment strategy, small business owners need to balance both investing in their own business and investing for their retirement. Small business owners should carefully interview a financial advisor to make sure the advisor understands the need to reinvest in the business but also has the expertise to guide the business owner toward investing through the stock market when that provides a better return.

Smart small business owners understand the importance of investing to grow their business and build a financial safety net for unforeseen emergencies. There are several approaches to consider, each varying in potential risks and rewards. One effective strategy involves enlisting the expertise of an experienced accountant who can efficiently manage your business finances, ensuring accurate bookkeeping and maximizing tax benefits. Additionally, partnering with a knowledgeable financial planner can provide valuable insights and guidance in creating a comprehensive plan for your business’s future, including retirement planning and investment strategies. Making these wise investments in professional assistance will not only bring immediate benefits but also yield long-term dividends, positioning your business for sustained success and financial stability.