The answer I give to small businesses…
Invest in yourself.
There is no dispute that there are risks associated with the investment in your business. However, you have complete control over the investment and can monitor it daily. It is not unreasonable to see a return of 25 to 50% or more in improved business productivity and efficiency from the purchase of a new piece of equipment, updating computer software or hardware, or investing in some employee training.
If you are a retail business and your inventory turnover is four times per year, and your average gross profit is 25%, an extra thousand dollars invested in inventory could return 133%.
A service business can invest in innovative new technology, upgrade its website, or train employees with new skills. This will provide significant returns over the long term as well as quality of life upgrades for everyone.
In the construction business you can purchase innovative new tools and equipment, or invest in marketable certifications or safety training, to become more efficient or differentiate your business from the competition.
If you don’t own the real estate where your business operates, it is worthwhile to investigate the business investment potential of a commercial property. By being both the tenant and the landlord you will make mortgage payments instead of rent payments, thereby building equity in the property. Business owners that did this 25 years ago often sell their property for more than their business when they retire.
It is still important to diversify your personal estate. In fact, The Business Therapist® encourages and provides help for small business clients to set aside part of each year’s profits to invest outside of their business.
These “nestegg” funds should be put into the most conservative and stable investments. Low risk investments outside your business, when combined with your more risky business holdings produce a lower overall risk position when looking at the big picture.
As a self-employed person your largest asset is usually your business, professional practice, or farmland. There is more than enough risk here. It doesn’t make sense to add much more outside your business. The events in the credit markets in late 2008 demonstrate what can happen with risky investments that are outside your control.
In summary, if you want to make a 25% return on your money, invest it in yourself. For your savings outside the business, put it somewhere safe and conservative.