So, your small business is in a place where you can begin thinking about reinvesting profits. Congrats! Now, all you need is a business investment strategy.
In today’s post, we’ll look at five steps to develop that strategy and make your profits work harder.
Assess your financial situation and business goals
The foundation of any investment strategy is knowing both short and long-term business goals. Sit down with your CPA and any other business advisors to ensure these are crystal clear. Otherwise, you could allocate money to areas that hurt your business in the long run.
Oh, and be sure to take into consideration your risk tolerance. This impacts the kind of investments you’ll be willing to make.
Then, you’ll want to get with your CPA to understand your financial position fully. This includes revenue, expenses, cash flow, and available capital.
Do your research
You should have a clear understanding of your financial situation and business goals after meeting with your CPA. But don’t stop there. Ask your CPA for tax-friendly investment ideas that align with your business goals and risk tolerance.
They’ll point you in the right direction, but it will be up to you to research all the options.
Define Investment Criteria and Strategies
Here’s where a fiduciary financial planner can come in handy. Even as you analyze the various investment options, they can help you determine important criteria for your decision.
This includes how much return on investment you want, timelines for gaining that ROI, and investment liquidity.
They can also help you with diversification strategies and how much money you’ll allocate to each investment.
Once options, goals, and risk tolerance are aligned, it’s time for the next step.
Create the plan
Put your plan on paper. An entrepreneur’s mind is already cluttered, and there’s no need to clog up mental bandwidth. Also, if you don’t put it on paper, great ideas (and opportunities) can get lost.
So, take the time to type out a comprehensive plan that outlines specific actions. Those actions should include the names of the persons responsible for implementing them and the timeline for each.
Monitor and Adjust the Strategy
Be consistent in your plan, but not too rigid. Remember, it’s written on paper, not chiseled in stone. So, if certain investments aren’t getting the ROI you want in the time needed, don’t be shy about adjusting course.
This gives you the freedom to adjust to market conditions, changes in business goals, and shifts in risk tolerance.
How often you review the strategy depends largely on the type of investment and market conditions. In normal times with ordinary investments, anything from a quarterly to an annual review should be fine.
However, be flexible here, too. Extreme conditions, like the COVID-19 pandemic, will require you to adjust quickly and more often than usual.
The Bottom Line
All these steps may seem like a lot of work in an already busy schedule. But your small business deserves a sound investment strategy. The extra effort will pay off in the long run and give your business financial options it might not have otherwise.
And having your money working harder than you is a great feeling! So, gather your team, plan, and build a solid foundation for your business’s success.