Throughout my career as an entrepreneur, I have found myself at crossroads that affected my decision-making process. How to invest money has usually been one of those situations where I had more doubts.
In a previous post, I told you about the types of investment you can make as a small business owner. That was the WHAT. In this one, I intend to provide you with the guidelines and strategies to invest, and whose effectiveness I have proved myself. This is the HOW.
I understand your doubts: I have lived them in the first person. I also know what it means when a financial institution turns its back on you or advise you without valuable guidance.
In Camino Financial we honor our motto: “No Business Left Behind“. We don’t just make numbers. We are expert advisors and consultants who can guide you in your investing decisions. I invite you to keep reading. I want to help you make the best decisions about how to invest money in your small business.
Some Tips for Beginners on How to Invest Money Efficiently
1. How much are you going to invest? Some considerations to calculate it.
Don’t think about getting rich quickly. That does not work and will take you on roads with unpredictable endings (and usually, bad). Rather than that, think about sustainably increasing the wealth your business already has -or the potential it can have, with the right investment.
There is good news: you don’t need much money to start. Your business is performing well and you want to invest those profits. Perhaps you have even managed to save something in your personal account.
I understand your doubts:
- What do I do with the profit my business is generating? Do I use everything to invest, or should I diversify into other assets?
- Should I turn to a financial institution to get more financing, and therefore generate more profits to have more reinvestment and diversification capacity?
- What do I do with my savings? Do I keep them as a safety net, and use financing for my daily operations?
To grow that money you need to learn how to invest. It is important to receive expert advice because your financial resources are limited and you need them to have the maximum potential.
Think long term about the sustainability of your business. Your short-term gains depend on many uncontrollable factors and you can easily lose everything you earn. I insist: think about winning in the long term and you will minimize your risks.
There is a lot of noise around successful investments. Try to rely on expert advisors. They will help you calculate the right amount given your circumstances and the best use of your investment.
CaminoTip: When investing, always rely on the professional advice of financial experts.
2. Calculate your ROI or Return On Investment
Here you can find in detail on how to calculate your Return On Investment. The ROI helps us see if an investment has been profitable or not.
I’m going to give you an example so you can calculate your own ROI.
Let’s take these two small business owners:
- One has invested $200 in a marketing campaign that has generated sales of $700.
- The other one has invested $1,000 in a similar campaign, generating sales of $2,500.
Which of the two do you think has obtained a greater return on their investment? Initially, it seems that the second owner has. But let’s analyze it.
The second entrepreneur invested $1,000 in his marketing campaign, generating sales of $2,500. It seems like a successful investment. But does he really have better results than the other small business owner?
What would be the ROI rate of the second owner? We can calculate it like this (remember that the rate is always expressed as a percentage):
ROI = [Profit (Investment Benefit less Investment) / [Investment] x 100.
In our example:
ROI = [500/1000] x 100 = 50%
- 500: Results from subtracting the cost of the campaign ($1,000) to the benefit of the sale, which is $1,500 ($2,500 in sales less $1,000 of the campaign cost)
- and then we divide it by 1,000 (the amount of the investment). Finally, we multiply it by 100 to obtain a percentage.
Now, let’s calculate the return on investment of the first entrepreneur:
ROI = [500/200] x 100 = 250%
Although both investments were successful, the first owner had a higher ROI rate.
I advise you against acting based on your intuitions or assumptions. Both are bad travel companions. Again, receive proper advise and always measure the return of all your investments.
But money is not everything. You also have to evaluate the time you invest. Let’s see another example:
- Imagine that you invest $1,000 in a campaign that took you one day of work and the very next day you start getting profits.
- On the other hand, there is an alternative that only costs you $200, but it will take you a whole week of work.
Which would you opt for? To have the answer you should first calculate your workday costs. Personally I would opt for the first option, taking into account how much costs one of my days in terms of money.
CaminoTip: Calculate the ROI of your past and future investments and take into account the time factor.
3. Do you have a strategy with an action plan that includes dates and goals? Let’s see how to do it.
As Seneca said, “If one does not know to which port one is sailing, no wind is favorable.”
It is imperative that you have a goal-setting plan in place to achieve your investment goals.
You must distinguish between short and long term goals. That way you can define a purpose for your profitability (besides the obvious: growing your business sustainably in the long term).
The usual long-term goal is your retirement. Also, you’ll probably want to have money available for your children’s college, for example. Or to move to a better house in a few years.
In the short term, you may have financing needs for your small business to allow it to grow in the medium and long term. Or maybe you want to take soon a small vacation to recharge batteries and return to your business with renewed energy.
You can count on Camino Financial and the financial advice of our experts to develop a financial plan that adapts to the needs of your small business and the goals you have for it.
CaminoTip: Focus on the long-term results of your investment.
4. Which investment best suits your personal case? Let’s see your risk tolerance.
I have gone bankrupt twice. But that hasn’t deterred me from being an entrepreneur. As you can imagine, my risk tolerance used to be high. Now it is not so much. Now I analyze in-depth any project and, above all, the impact it can have in the short, medium and long term.
I wish I had thought in the past about protecting my business and being prepared for the unexpected.
Higher profitability is always associated with greater risk. Nobody is going to give you, let’s say, one dollar for every dollar you invest without involving a high risk (and, if you are 100% assured about the success of the investment, get suspicious: it could be a scam).
CaminoTip: Any investments involves a risk. Evaluate your risk tolerance before making a decision.
Some Golden Rules on How to Invest Money to Succeed
- Always, always, always have an honest and experienced financial advisor by your side. At Camino Financial, we match you with a business loan specialist that walks with you throughout the business loan process and beyond. We pride ourselves in establishing long-term relationships with our members. We witness and celebrate their success!
- Don’t rely on your intuition. Trust your advisor, improve your strategy daily and work constantly on your action plan.
- When thinking about how to invest, think long term and about how to be sustainable. Short-term gains are not an objective in themselves. They will be the consequence of a good job that has to focus on the medium and long term.
- Think like an investor and not as a speculator.
- There are some lucky strikes when investing, that is true. But I don’t know any wise investor who only relies on fate when it comes to growing their business.
- Definitely, a business loan can grow your company in many ways.
- Investing is a complex process. It is easy to understand but difficult to handle. I insist: don’t do it without honest professional advice.
You Don’t Like Risk When Investing Your Money? Consider Camino as a Sensible Alternative
If the words “security” and “stability” resonate in your head, that’s because you know the value of every dollar you earn. It is not easy to earn that money on a daily basis, and it is hard to think that a bad investment can make it go away.
At Camino Financial, we understand how difficult it is to know how to invest securely and sustainably. That’s why our professionals are trained to teach you how to invest money with an ultimate goal in mind: your business growth.
One of our business loans can be a wise and sensible investment: it is stable, it’s risk-free, and it will help you grow your small business.
I invite you to use our business loan calculator. It is simple and you can get a quick idea of the total cost of your potential loan and your monthly payments, depending on the term you choose.
What can you use the loan funds for? These are some common purposes aimed to grow your business:
- Equipment financing
- Increasing your inventory
- Investing in your staff and human resources
- Digital marketing campaigns
- Purchasing business technology
- Building a sales team
I hope I helped you think about the process, tools, and people involved in developing an investment plan that is right for you.
Now that you know how to invest money, count on us to help you, and take the step requesting a loan quote. We’ll be glad to help!