Many business professionals agree with the old saying, “You have to spend money to make money.” No matter how well your company is doing, if you’re planning for it to scale, you will need to invest money back into the company.
It’s important to invest strategically to enable sustainable growth, whether that means introducing new product lines or entering new markets. Here’s a look at some areas of investment that could offer a more significant potential return:
- Digital transformation To succeed in today’s market, every company—no matter the business—needs a multiplatform presence. Spending money to build a functioning website, establishing a digital marketing strategy, and emphasizing cyber security is simply part of building a modern business. More than seven in 10 CEOs surveyed by Chief Executive said they planned to make digital investments this year.
- Staff development In a competitive marketplace (three-quarters of today’s companies say they’re having trouble finding skilled workers, according to Manpower Group), staff development gives you an advantage in attracting and retaining talent. Your team is among the most valuable assets in the business, and investing in your staff can foster loyalty and improve the experience that you offer your customers. Providing a strong training and education program can go a long way. A better trained and more experienced team can enhance your company’s efficiency and boost your bottom line.
- Strategic acquisitions Spending money to purchase another company is a significant investment and commitment for a small business, but it’s also a viable strategy to scale. During times of market disruption and economic uncertainty, you may have opportunities to combine forces with a competitor or purchase the intellectual property of another company that could propel yours forward.
All investments require capital, and in many cases, they require an ongoing injection of capital rather than a one-time expense. There are several avenues that small businesses can use to access that capital, each with its pros and cons.
In addition to banks, many lenders may give you a loan to invest in your business.
Pros: When you take out a loan, you do not have to dilute your ownership stake. Borrowing money can be a brilliant way to cover costs if you have a short-term need and expect your investments to generate enough revenue to pay back the loan quickly.
Cons: You’ll have to pay interest on your loan, which makes this an expensive form of raising capital. You’ll also need to qualify for the loan, which means you’ll need to build and maintain your company’s credit.
Bringing on investors
Depending on the industry in which your company operates, there may be angel investors, venture capitalists, or private equity firms interested in investing. Of course, it’s important to carefully vet potential investors to ensure that you want to become business partners.
Pros: Investors have skin in the game and want you to succeed, and some investors will supply their own knowledge or connections to help you get to the next level. This can also be a smart route if your business has not yet built up enough credit to borrow funds.
Cons: By definition, taking on investors means diluting your ownership stake in the company and your voice in operating decisions. In addition, some investors may have a shorter time horizon than you, and you may need to adjust some long-term plans to accommodate their concerns.
Managing your cash flow
This is the most cost-efficient way to access capital, but it only works if your company generates significantly more money than it spends regularly.
Pros: Generating cash through your business to reinvest is a sign of a healthy business. Reinvesting your profits can signal to other potential investors or lenders the viability of your company, should you decide to borrow money or take on investors later.
Cons: There are limits to the amount of capital you can generate through cash flow management. Sometimes businesses in growth mode hit cash-flow challenges that are difficult to overcome without an injection of outside capital.