When you are running your own business, it seems your need for resources of time and money never stops. Whether you want to expand your business, develop a new product, add staff with specialized skills, invest in a significant marketing campaign, or refurbish your facilities, you must continue to invest in your business over time. So, don’t think you’re finished pumping money into your business once you get past the major hurdle of launching the brand. You need to build wealth for yourself and your investors, while you build profits and popularity for your brand if you want to succeed over time. You want to invest to keep up with the competition. Otherwise, you’ll soon find you’re falling behind every year as your competition continues to invest in growing their business and sustaining their brand. Obviously, as a marketer, I recognize the value of making those investments in marketing, especially digital marketing, which produces a strong ROI. Below, you can see the expected payback from every dollar invested in digital marketing based on an analysis of businesses in various sectors.
If you don’t continue investing in your business, you’ll miss out on key opportunities to increase your bottom line or even survive against intense competition. It’s also the thing that furthers your business, too. Of course, all the investment doesn’t come from your own pocket. Retained earnings from the business or new investments in the form of loans and stock sales are both great tools as you continue to invest in your business. Also, consider increasing retained earnings by reducing your own salary, controlling expenses, and refraining from distributing dividends with the explanation that you’re reinvesting the money in further building the brand. From using a Stock Rover to work out where you can invest retained earnings with the highest return rates, to working with an investment banker to explore new issues of stock, you have lots of ways to invest in your business over time with the proper planning and advice. Below, we list the top 10 reasons you should consider when determining to invest in your business.
Why you must continue to invest in your business
Continuing to invest in your firm offers the flexibility you need to grow your business over time, whether that means expanding your physical footprint, developing new products offerings, hiring folks with specialized skills, or even tiding you over during periods of uncertainty. For instance, stresses caused by the pandemic and ensuing supply chain problems meant business funds were strained to cover existing expenses. Without careful money management and options for increasing the investment in your businesses, many businesses failed.
Any change wrought by changing economic conditions or opportunities means you need increased investment to cover additional expenses. During the pandemic, many businesses were forced to move their operations online. If you were a retailer, that meant building an e-commerce website and supporting infrastructures, such as storage facilities, material handling equipment, and staffing to operate the warehouse. If you weren’t in a position to invest in your operation to quickly adapt, you likely failed. In fact, the Wall Street Journal shared the dim view of business closures, something that hit small businesses especially hard.
So, let’s look at the benefits you achieve when you invest in your brand.
1. You have extra cash
You want to increase the money you have to play with in your business, as mentioned above. Investing money in your business allows you to grow it properly. As mentioned earlier, some of this investment comes through retained earnings or new investment into your business. That means wisely managing your investments to achieve the highest return so you have the money necessary. Almost all of the investment vehicles out there; like stocks, bonds, deposit certificates, and others, offer a good return on your money over time. Without this return, your money cannot build and you won’t create the wealth you need to create in order to invest in your business. You want to manage investments wisely so you can keep pumping into expanding your business in the future. Take your time to learn wise investment strategies – you need this!
2. Save for the future
Whether your personal goal is to use your business as a tool to fund your retirement, as a source of continuing wealth for your family, or as a vehicle to ensure your heirs have a vocation in the future, investing in your business allows you to achieve your goal. Some businesses start as lifestyle businesses, designed to replace the income of the owner during his or her productive lifetime and support them into retirement. Other businesses are designed to create family wealth that’s handed down to generation after generation. Think about dynasties such as the Carnegies, the Fords, and other icons of industry. The last type of business is built with the notion of passing down the business to successive generations as a means of employment. These family businesses are the bedrock of the economy as they not only support the family but two-thirds of all employment growth and nearly 50% of the US GDP comes from these types of businesses. Thus, not only does investment in your business support your own wealth but the economy, as well.
3. Meeting your financial goals
When you opened your business, you set financial goals and a timeline for reaching specific goals. Investing your money can help you to do this with ease, and if your money earns a higher return rate than a regular savings account, you’ll earn more money and it will grow faster. You can use this financial return personally toward your own financial goals like buying or remodeling a house, college education for your kids, a car, etc. Meeting your financial goals also helps your business become more nimble and take advantage of more opportunities. Reaching your financial goals is so much easier when you invest retained earnings for the greatest return.
4. Invest at pre-tax rates
When you invest in growing your business, you can do so with pre-tax money as part of your 401K. This is a great advantage in starting your business or investing to grow your business, as it’s like the government investing 20% or so of the funds needed to start or run your business. When you invest pre-tax money in your business over time, you’re growing your business in the most economical way possible.
Of course, there are rules. According to Forbes (see the link above), if you take a distribution of your retirement funds before 591/2, you pay a penalty. However, you can take a loan against your 401K or use a ROBS (see below) to fund your business without penalty (you must use the C-corporation option for a ROBS).
The Rollovers as Business Start-Ups project (ROBS) allows you to use your retirement funds tax- and penalty-free. There’s no limit as to how much of your funds you may use. Plus, you are allowed to personally be involved in the business and take a salary, without breaking any of the prohibited transaction rules.
Another tax advantage of investing in your business is that these investments reduce your tax indebtedness. You can reduce how much of your income is taxable. As someone who is investing, you can usually reduce your taxable income when you invest your pre-tax cash into a fund like a 401(k). If you sustain any losses from an investment, you could begin to apply the loss against any investment gains.
5. Employee ownership programs
You don’t have to come up with all the funds to invest in your organization. Many businesses find employee stock ownership programs a great way to grow their business. The way it works is that employees invest in the business in exchange for stock in the company. These ownership plans may replace other forms of compensation and are common for C-suite level managers. Employee ownership programs may also form the basis of your employee 401K program. Both options reduce your operating expenses so you have more money to invest in your business while providing tax and other benefits to employees.
Another advantage of employee ownership programs is that it binds employees more strongly to the firm; reducing turnover and increasing commitment to the success of the firm. These advantages lead to the improved financial performance of the firm.
6. Branch into other sectors.
The more you invest in your growth, the more you can expand and respond to changes. For instance, you can add more branches or invest in operations closer to the customer (forward integration) or farther from the customer (backward integration). If you own a retail operation, you might expand into warehousing or, as a warehouse business, you might invest in physical stores. For instance, grocery retailers often own their own distribution centers and may even own a transportation company. You can expand your online operations or develop a brick-and-mortar business. For instance, Amazon started building both stations for customers to pick up or return purchases, as well as a few physical stores.
You can even enjoy the process of creating a new product or business and building it into something much more successful. For instance, Apple invested a massive amount to develop the technology for their first iPhone. Over time, this investment paid off handsomely, making them the leader in smartphones.
7. Advertising investment
If you think about it, the nexus of your business is revenue from customers. It is this revenue that pays the bills, generates dividends that attract investors, funds growth, and allows investment in new operations. Thus, investing in marketing and advertising generates more revenue for your business and offers a form of investment to support the business.
By investing in your business, you can better support others, including your employees, your investors, and, maybe, even society. There are many investors out there who love to invest in people and you could end up being one of those investors. The more successful your business grows, the more money you have to play with and you can get your business out there and even more successful.
You can be part of something new. Invest wisely enough, and you can end up with your business investments going into a whole new venture.
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Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.