You’ve reached a new business milestone, and you’re finally ready to figure out how much to invest in your business. Congratulations! Let’s chat about your options for learning exactly how much to invest depending on your goals. Many people misunderstand investments as an added expense, when really if you know how much to invest, an investment will make you more money in the long-run.
Investing in your company is like going grocery shopping. Have you ever gone grocery shopping on an empty stomach with no grocery list? If so, you know you usually end up overbuying food. Whereas if you go with a list and a goal, you buy just what you need and spending exactly what you had budgeted for. Knowing how much to invest in your business is the same: you can’t leave anything to chance. You need to establish clear goals and elaborate an investing plan to meet those goals.
Your business journey should have three phases:
- A goal setting plan
- A concrete plan about where and how much to invest
- Options for capital resources to be able to invest
3 Steps to Figure Out How Much to Invest
1. Set your goals with a goal-setting plan
Here’s the deal: if you want to accomplish all of your goals, you need a good plan. A goal-setting plan is a written document that answers the questions: what do I want to achieve? Why do I want to invest? Goals should be divided in short term, mid-term and long term.
Also, you want to be SMART about these goals, and I mean that quite literally and figuratively. SMART goals stand for the following:
Specific: Instead of saying, “increase business revenue by 50% this year,” try “increase business revenue by 50% this year with the addition of a marketing team that will implement 2 marketing tactics every month of the year.” Let’s run with this example.
Measurable: Be sure to understand how you’re going to measure the marketing tactics. For example, if you put out a newspaper advertisement as part of marketing tactic #1, you can add a coupon code for a 10% discount for new customers. That way you can simply count how many customers use the coupon, and therefore you will be able to measure exactly how effective this specific tactic is.
Achievable: Make sure your goals are high enough to be effective but not too high where you know you’ll fall below what’s being proposed.
Relevant: Make sure your short-term and long-term goals are related to one another. There’s no use in investing in aesthetic enhancements to your business if your priority is to have more personnel to attend the increasing demand for your services.
Timely: Set a deadline to achieve your goals. If the goal is not met by the deadline, analyze why the goal was not met and move forward with goal revisions to be able to meet your goals.
Want to know the best part? Goal-setting and completion can also be a team activity. In fact, it is advised that to successfully complete a goal, owners should involve their whole team, sharing goals and expectations and celebrating once goals are met. Teamwork makes the dream work, right?
Here’s an excellent example of how goal-setting could function for a small business. Julio and Teresa Mendieta are the owners of a clothing alteration small business. They only have one employee and do most of the work themselves. They’re interested in learning how much to invest by expanding their services and gaining more customers. Here’s what their goal chart should look like:
2. Decide where and how much to invest
Investing is not a complex endeavor once you have a clear overview of how much to invest and how much risk you can handle. You can get a clear overview by following a goal-based investment strategy, which basically means investing in accordance with the goals you have set for yourself in your goal-setting plan.
In keeping with the example detailed above, Julio and Teresa’s alterations business, let’s now break down how they can set a goal-based investment strategy. There’s no simple answer to the question “How much?” However, considering their short-term goals of increasing daily productivity and attracting more customers through an online presence, we now know that they might invest in equipment that’ll help them speed through the process of alterations, or better quality equipment. They will also have to invest their personal time on their website or on hiring a freelance SEO specialist and a social media specialist to manage the website and implement strategies. The exact price of each item will depend on the route they choose and the rates of the people they hire, but we can estimate in the example below (you’ll see now that to the goal defines in the previous phase, we have added the investment needed to meet such goal).
As you can see, the specific amount of money needed to invest in the mid and long-term goals is still missing. Your priority is to have a very clear picture of the short-term numbers. Once these short-term goals are achieved proving results, it’s time to move to a higher level and to expect a higher potential benefit from your mid and long-term investments.
Other considerations to decide how much to invest:
- It is key to evaluate the risks involved in your investment. For example, what will happen if Julio and Teresa make the investment needed to offer bridal gowns services and then there are not customers requiring this service? Is it a good idea to offer this kind of seasonal service? Does the population in their area match their target customers? They will have to carefully analyze all that before taking the leap of expanding their services to bridal gowns. A second and even bigger risk will be opening up a second location a few years down the line. They must consider whether or not the location is the right choice to attract customers, the competition is in the area, and plenty of other factors to decide if the investment is worth the risk and if it will garner the returns they expect.
- When coming up with investment figures, don’t forget the working capital you currently use in your business and keep in mind this amount will increase in the future, i.e. monthly expenses, rent, utilities, payroll, taxes, etc. This is why it is always beneficial to separate a security cushion, or funds you will keep handy in case anything goes wrong.
- Most importantly, follow the rule of thumb in investment: don’t put all your eggs in one basket. Diversify your investments. Always consider these four areas: people, processes, technology, branding. Camino’s blog has plenty of posts for further ideas on what areas to invest in. Just like your goal-setting plan, revisit your investments periodically to ensure they are in line with your goal modifications.
- To come up with a specific figure, you have to crunch numbers and do some research. For example, if Julio and Teresa want to improve the fitting area in their store, they will have to shop for different prices and quotes from contractors in their area. One thing that can help you is a business plan (since it includes a description of your business, a market analysis, an analysis of the competition, etc.) and also financial advisors.
3. Find the capital resources to start investing
Before you begin investing you must understand one thing: investing is not an added cost – it pays you back.
To start investing, you have to evaluate your capital options, i.e. what kind of loan and lender you need. It’s key to match your goals and financial needs with the right type of financing. There are different types of loans depending on the type of goods you want to buy (tools, equipment, buildings, machinery, etc) For instance, it’s likely that a short-term investment like inventory will require a small business loan from Camino Financial. Whereas, buying a new store will require a larger and longer-term loan like an SBA loan.
When you visit your lender it’s also crucial that you know exactly how much you can borrow for your business, along with the ROI (Return on Investment) you will get from your investment. If you don’t think you can earn back the money you invested (the price of a loan) plus obtaining some profit, then probably the investment is not worth it. In other words: invest only when you are certain the ROI will exceed the initial cost of the investment.
Last piece of advice: start the process of looking for financing ahead of time. Don’t wait until you need the money urgently: you may be forced to accept the first offer that you get from a lender. This could mean borrowing at a high cost and with no favorable terms.
Camino Financial’s business loans make a great option for those who want to invest in their business the right way.
- To calculate wisely your investment, you can use this business loan calculator to know exactly the cost of your loan and arrive at a monthly payment that makes sense for you.
- We offer term loans from $5,000 to $400,000 to adapt to any of your business needs and your investment projects.
- After 8 months of timely payments, you have the possibility to graduate to better loan terms and interest rates: this is a great way to make your investment goals more attainable and even reach further goals.
- Our process is quick and simple: you can receive your funds within 4-10 business days.
Don’t postpone your plans for growth any longer. Applying won’t impact your credit score. Soon after a loan specialist will get in touch with you and help you find the loan that best fits your investment plans.
All it takes is a few minutes to submit your online application!