It can mean the difference between long-term growth and having to close up shop early if you don’t get a cash injection for your company. A lot of small businesses fail to invest properly in their own growth, so it’s important to know when to get extra help and how to find funding.
- Investing in small businesses explained
- What you need to know if you need an investment
- What can investment do for my business?
- Which types of investments are available?
- What business investment should I make?
Investing in small businesses explained
The money spent on running a business is an investment. As long as the investment is used to grow your company, regardless of whether it’s your own funds or external financing (like crowdfunding), it’s a business investment.
You might, for example,
- Purchase new equipment / IT
- Hire more people
- Provide training and development
- Upgrade your facilities
- Invest in advertising, PR, and marketing
- Build your brand
- Develop a patent or intellectual property protection plan
All of these examples involve spending money on your business in order to achieve long-term success – therefore investing in your business. To learn more about how an accountant can assist you with business investment, keep reading.
How to determine if your business needs investment?
Developing and growing a business is always a challenge, so it can be hard to determine exactly when you will need more funds. It is possible that you and your staff are working long hours, but not managing to grow the business much. Your marketing may or may not be having the effect you would like or you may struggle to reach your sales targets. In addition to falling behind your competition, other signs include low morale of your staff or lagging behind your competition.
Stagnant (or falling) revenue, high staff turnover, and failing to meet annual targets are all signs that your business needs investment. It could also be something as simple as the state of your premises. Does your shopfront look tired, or is your office drab and off-putting to potential new recruits? You can avoid greater costs later by spending a little now.
What is the best way to invest in my business to grow it?
The following are some of the key areas where investment might benefit your business.
The success of your business will be determined by your team – it’s not for nothing that people are referred to as “the biggest asset” in the business world. You can equip your employees with the skills and knowledge they need to effectively advance your business by investing in their training and development. Additionally, it is important to invest in your company’s culture, which can take the form of anything from a supportive onboarding program and rewards to hosting team-building events and creating a comfortable and motivating work environment.
Employee benefits are one of the most popular and effective people investment strategies. An attractive package might include a good workplace pension, flexible working, extra holidays, company car schemes, cycle-to-work schemes, and season ticket loans, to name only a few. Offering new recruits these types of perks can appeal to them and may be cheaper than offering them more salary.
Processes and equipment
It’s likely that outdated machines and manual processes will slow you down and hinder long-term growth. Plan ahead to see what your future needs will be and make investments in up-to-date equipment in good time. Take extra care to keep up with technology if your business is mostly online as competitors can quickly overtake you with more modern and user-friendly systems.
Research into the market
Checking out the competition and opportunities isn’t cheap, but as long as you do it correctly, it should pay for itself. Staying in touch with your core market and identifying new opportunities and risks are two key benefits of market research.
A research and development effort (R&D)
Would your business benefit from innovation? Do your competitors come up with new and better ways to solve the same problem? Government funding may be available for research and development that advances scientific or technological knowledge, so it is worth exploring.
A marketing strategy
Almost every business must engage in some form of marketing. Basically, marketing is all about reaching prospective customers and making them aware of your products and services. In this case, small business owners face a unique challenge, so marketing experts can make all the difference.
Are there any types of investment I could get for my business?
For small businesses, there are three main ways to secure investment.
Having a debt
In debt funding, a business borrows money from a bank, building society, or other lending company. There are loans secured against company assets (much like a mortgage), while others are unsecured and based on your financial situation. You must meet their eligibility requirements, which means you must have a good credit score, a well-written business plan, and a clear explanation of how the money will be used. You’re more likely to get a loan when your case is stronger.
The private equity sector
In exchange for cash, you sell a stake in your business to a wealthy investor (or group of investors). Typically, you would sell no more than 30% of your business, and your investor would also provide business support and guidance. As a result of this additional advice, these investors are often called ‘business angels’. Business angel investments are common among startups. It is important to have a solid business plan.
If you want to reinvest part of your profits instead of taking them as income, you can do so. Benefits can be significant if you can afford it. You avoid debt and the associated interest payments, and you do not dilute your equity share, so in real terms, it is by far the cheapest option. Additionally, if you later seek debt or equity funding, your future investors will be impressed by your confidence in your own business.
Learn more about business fundraising.
What is the best business investment for me?
Choosing the right Investing in your business depends on your individual circumstances. If you’re making a healthy profit and can afford to forfeit some of it, then reinvesting profits may be the best option for you.
However, if you want fast growth but don’t know how to manage it yourself, a private equity investor may be able to provide you with the expertise you require.
Furthermore, debt financing from a bank might be the best option if you want to keep 100 percent equity ownership but cannot afford to sacrifice a large portion of your profits.