As a small business owner, it’s important to understand how to invest your capital wisely and how to diversify your funds to attain financial stability in your personal life. We spoke with 25 experts who shared different investment strategies to help you grow your business and achieve a healthy financial future.
Below are the 25 best investment strategies for business owners from the pros:
1. Find a Balance Between Outside Investments & Reinvesting in Your Business
Joshua Escalante Troesh, President & Founder, Purposeful Strategic Partners
One of the biggest challenges small business owners face is how to manage the fact their net worth is tied up in a single small company — their own business. While diversification is a cornerstone of traditional financial advice, small business owners should achieve a balance between their diversified portfolio investments and investing in their own business. Small business owners should carefully interview a financial advisor to make sure the advisor understands the need to reinvest in the business, but also has the expertise to guide the business owner toward investing in other companies through the stock market when that provides a better risk-adjusted return.
2. Invest in a Formal Disaster Recovery Plan
Jeff Somers, President, Insureon
It’s important for small business owners to invest in a formal disaster recovery plan and business interruption insurance to protect their businesses in the event of a damaging natural disaster. However, many small business owners lack both a formal disaster recovery plan and business interruption insurance, a key insurance policy that can help pay for operating costs if they’re forced to close temporarily. In fact, according to a recent poll by Insureon, conducted with small business resource Manta, 61 percent of surveyed small businesses lack a disaster recovery plan while 60 percent admit that they don’t carry business interruption insurance.
3. Diversify Your Investments Away from Your Business’s Industry
Frank Byskov, Founder & Wealth Manager, Forty4 Financial
Avoid the familiarity bias and keep your investments diversified, instead of focusing on your field of expertise. For example, many doctors invest heavily in pharmaceutical and biotech stocks and real estate professionals have an affinity for real estate investments, doubling down on their industry. As a small business owner, you have a concentrated risk exposure in your field of business, and your investment portfolio should complement this exposure instead of adding to it. A great way of doing this is to construct a broad-based portfolio with limited investments in your field of business, thereby giving you a well-diversified overall allocation, with a better ability to weather industry-specific turmoil. A good financial professional can assist you with this, or you can construct it on your own using broad-based index funds or ETFs [exchange-traded funds].
4. Invest in Rental Properties
Alex Membrillo, CEO, Cardinal
If you have a decent amount of extra cash, it’s best to wait for the next downturn and scoop up affordable rental properties in areas that are about to grow in your city. Rental properties are also a good investment that can provide you with an extra stream of income. This idea is great for people who don’t want to be only invested in stocks.
5. Avoid Micro-cap Equity Investments
Daniel L. Grote, Certified Financial Planner & Partner, Latitude Financial Group
Most business owners place a significant portion of their personal capital into the business that, from an asset class standpoint, might be considered a micro-cap equity investment. This is highly volatile with significant risk for loss. They may have also made significant investments in nondiversified commercial real estate. This kind of assets should best be avoided in your portfolio. What you need in your portfolio is large-cap, such as international — developed and emerging — markets and various forms of fixed-income.
6. Conduct a Thorough Due Diligence When Investing in Stocks
Zachary Lezberg, Owner, The Small Business Expo
The most important thing for any small business to do before investing money in stocks is to conduct due diligence and thoroughly research options. Exercise caution and don’t jump in too quickly. Make sure you have vetted the market and have a solid understanding of how investments are made. It is mandatory for public companies to provide financial and other important information to potential investors. Analyzing that information can help to determine whether it’s best to buy, sell or hold a particular stock. Also, keep in mind that the market has ups and downs. Unpredictability is inevitable, and the market can change at the drop of a hat. Do not get scared or anxious and pull out of an investment because one day the market drops.
7. Contribute to a Retirement Plan
Stephen Schuller, Vice President, Dorsey & Company, Inc.
As a business owner, you should have and be contributing to a retirement plan, especially because you do not have an employer to fall back on. Although many business owners plan on funding or at least heavily supplementing their retirement with the proceeds from selling their business, they often overestimate the value of that enterprise. This miscalculation can be very costly and once again underscores the need to set up a suitable retirement plan. It’s important to start saving as soon as possible. Different plans provide a great way to set aside a substantial amount of money in a tax-deferred account to help provide for your retirement.
8. Invest in Yourself & Improve Your Skills
Matt Weik, Owner, Weik Fitness, LLC
Invest in yourself and in bettering your skills and abilities. You can enroll in some courses that are related to your industry or take certification programs that you may need for your business. You can make many financial investments yet still risk losing money. When you invest in yourself, you have a better opportunity to improve your business and revenue. Unless you make the investment in yourself and have zero follow-through, you will always end up on top investing in yourself.
9. Build an Emergency Fund
Andy Nathan, President, Smart At the Start
The first step to investing is to set up an emergency fund. If you have an emergency fund, you won’t need to touch your savings or investment account whenever you have an urgent need for money. You may start small, especially if you are currently financially challenged. For instance, you can set aside as little as $1 every week for a start. However, make sure to increase that to around $25 per week within 6 months to build your emergency fund.
10. Invest in a Small Office Building
Jo A. Steinberg, CEO, Midland Health
Renting office space is similar to renting an apartment instead of owning your home. However, it is not right for every small business. First, your business must be stable and well-established. If you know your business will flourish and carry on for at least 7 years or longer, and if you plan to stay in the same location, then purchasing a small office building can be a great investment. It will save you on rental cost, and you can use your office on your own terms.
11. Invest in Your People
John Evarts, CFO & COO, Mediafly
As a small business owner, each hiring decision is a step change in the trajectory of your business, for better or worse. The best investments we can make are those that ensure we are able to both attract and retain the best person for every position. Whether that means investing precious time to interview enough people to hire the best-fit candidate, investing your energy to provide guidance and support or investing limited financial resources to craft the perfect compensation and benefits package or optimal workspace. The investments you make in your people can provide more return than any other investment.
12. Setup Automatic Investments into Low-fee Index Funds
Michael Wittmeyer, CEO & Co-founder, JM Bullion
The simplest and most effective investment strategy for small business owners is to set up automatic investments into low-fee index funds. As a business owner, your energy is largely preoccupied by your company, and it is unlikely you have time to spare for researching and evaluating specific stocks or bonds. By setting up automatic investments, you will dollar-cost average into low-fee index funds, which is a proven method for long-term returns. This strategy also allows you to stay as emotionless as possible with your investing because there is no reason to ever look at day-to-day performance given you aren’t making any day-to-day decisions. Many investors get into trouble when they watch their investments rise and fall daily as they run the risk of letting their emotions cloud their long-term strategy.
13. Invest in Product Offering & Revenue Channels
Kyle Baptist, Founder & CEO, Marconi Beach Outfitters
Small businesses investments in product offering will increase revenue and profit. Start by looking at the five top-selling products your company offers and expand on those offerings. Know your customers’ needs and find a way to cater to those needs. It may need a lot of brainstorming and require a high initial investment, but the return and increase in profits will all be worth it.
14. Invest in Your Own Business
Colin B. Exelby, President, Celestial Wealth Management
One of the most important investments for a small business owner is to invest your time, effort, and money into your own business. If run profitably, rarely are investments available that can compete with the IRR [internal rate of return] of investing in yourself and your company. The problem becomes an overwhelming reliance on the health of the business for future prosperity.
15. Consider Investing in Cryptocurrencies
Anant Handa, Co-founder & CSO, Mandala
Although still not fully mainstream and in some cases considered obscure, cryptocurrency and blockchain assets have driven an entirely new gig economy, still quite small but growing every day. Cryptocurrencies like bitcoin, ethereum, and litecoin might not necessarily replace cash or fiat because of price volatility, but they may make a great medium- to long-term investment opportunity.
16. Contribute the Maximum Allowable Amount to Your Retirement
Meg Simone, Owner, Meg Simone Films
Do not only to save for retirement but do your best to contribute the maximum allowable amount each year. This is critical because as a business owner, you don’t get employee benefits like an employer match or a 401(k). By learning to discipline yourself to contribute the maximum amount, you don’t only put away more money to grow for the maximum amount of time it can, but you can also use it to offset the taxes you owe each year strategically.
17. Invest in Online Marketing
Kosei Okubo, CEO, Founder’s Guide
Online marketing is growing by leaps as the number of people using the internet has grown substantially. More than 90 percent of the United States population uses the internet, and it’s believed these users have made a purchase online at least once. To help your business grow, it’s important to set aside a portion of your capital for online marketing. This investment will go a long way as it allows you a wider reach and most of your target audience is on the internet.
18. Invest in a Certificate of Deposit for Lower Risk
Melissa St. Clair, Owner, Paper Chaser
Pay yourself first. It’s a statement you hear from business coaches, finance gurus and small business owners alike. Not all small business savings or checking accounts earn interest, or if they do, the interest earning rate is very low. Opening a certificate of deposit (CD) is a way to save money at a higher interest rate, compared to your regular savings or checking account. Also, it’s great for conservative investors who don’t want to take high risks. Watch for special promotions from your financial institutions and set up a short or long-term CD to save money for your business’s future.
19. Invest in Search Engine Optimization for Your Website
Shawn Breyer, Owner, Breyer Home Buyers
Small businesses should invest in assets that continue to produce revenue for them over the long-term. Most people will buy Google AdWords or Facebook Ads for their marketing. Usually, however, they have a one-time opportunity to produce a return. When you stop spending money on them, they stop producing leads for your business. Compare that to investing in search engine optimization (SEO) for your website instead. When you stop spending money on SEO services, your site will still be ranking high for your keywords, and you’ll still be getting organic leads from SEO for months or years after you stop spending money on that. With investing in SEO, you have created an asset that will continue to produce leads and income for your business for a long time.
20. Invest in a SEP-IRA
Jeff Neal, Operations Manager, The Critter Depot
Invest in a self-employed pension (SEP) IRA. SEP IRA allows you to take company earnings and deposit up to $55,000 into this IRA. From there, you can invest it into mutual funds or ETFs. Using a SEP-IRA is proven to be a very effective, tax-free way to control a company’s earnings without getting hit with taxes.
21. Hire an Accountant
Amy Corbett, Wealth Management Advisor, Northwestern Mutual
Don’t do your own accounting. As your business grows, finances become increasingly more complex, which increases the likelihood you’ll spend way too much time trying to make sense of your earnings and expenses in preparation for tax season. Not only is this a way to dodge a guaranteed headache, but it’ll also free up time to grow your business. Invest some of your funds to hire an accountant, and you’ll save yourself from headaches in the long run.
According to LendGenius, it’s essential to bring your business name out there. Therefore, you should invest a portion of your capital to increase your brand exposure through marketing campaigns, sales meetings, networking events, news articles, public relations interviews and similar activities. These promotion efforts will help introduce your business to prospective customers and generate new leads.
Sanchez Wealth Management recommends diversifying your investments by geographical region. Investing most of your assets in local businesses can increase your risk because if the market were to shift out of favor with your particular location, it could be a disaster to your portfolio. By investing in securities outside of your region or country, you avoid letting the economic troubles of one location ruin your entire investment portfolio.
To be successful in your stock investments, it’s always a good idea to educate yourself on what’s happening in the financial markets. According to Feed Rool, being aware of the economy allows you to sell before the price of your stock or asset falls too far. Also, monitor your investments properly and learn to think of new strategies based on the current market conditions.
People’s United Bank suggests that small business owners should learn different asset allocation strategies to be successful in their investments. It’s important to understand that different asset classes behave differently in various economic environments. It allows you to achieve the right asset mix which lets you take advantage of returns when they occur.
The Bottom Line
As a small business owner, you should learn how to invest your funds wisely to grow your business, increase profits, create diversification, reduce risk and boost your potential for returns. It’s important to be open to new ideas and experiment with different strategies to improve your profitability. Use the above investment strategies and tips from the experts to help you get started.