If you’re the owner of a small company, it’s important to believe in yourself. But to take business to the next step, it’s often necessary to put that belief into action by investing in your enterprise in order to spur growth.
Results of the most recent MetLife and U.S. Chamber of Commerce Small Business Index quarterly survey of small business owners show that over one in four respondents (27%) plan to increase investment in their company in 2019, roughly to the same degree (29%) indicated in the last quarter (Q4 2018). Organizations with 20 or more employees and those owned by minorities expect to do so at a higher rate (36% and 39%, respectively) than businesses with less than five employees and non-minority-owned companies (24% and 25%, respectively).
Among sectors, players in the retail (30%), manufacturing (28%) and service (27%) space anticipate investing more in their businesses than those in professional services or other sectors (≤24%). Most small businesses actually plan to maintain the same level of investment in their companies, including 58% of service and professional service-oriented organizations, 53% of manufacturers, and 52% of retailers.
Despite the booming economy, Robert Kandell, author, podcaster and owner of Kandell Consulting Inc., isn’t amazed that more small businesses aren’t funneling funds back into their operations lately—which is typically done by either lending personal money to your company, depositing cash into your business’ bank account or buying stock in your corporation, or putting extra funds into savings.
“The issue with small companies is that they tend to be undercapitalized or even bootstrapped by their owners. Most firms are struggling to produce a product, pay their existing staff and have money left over to pay the owners,” he said. “This is often due to poor planning, lack of a solid forecast, and the fact that the owner didn’t invest in the prep work to start their firm.”
If your business is flush with revenue, you should plan to put it to good use now and increase investment in your company.
Joseph Hoelscher, attorney and co-owner of Hoelscher Gebbia Cepeda, PLLC
Ron Stefanski, on the other hand, expected the Index numbers to be higher.
“I’m surprised that only 27% plan to increase investment in their businesses,” said Stefanski, owner of JobsForTeensHQ.com, a job search website for teenagers. “Considering the economy has been doing so well and consumer confidence is higher, I would assume that many businesses saw increased revenues in 2018 and would be looking to increase investment.”
Joseph Hoelscher, attorney and co-owner of Hoelscher Gebbia Cepeda, PLLC, agreed that now is an ideal time for small business owners to up company funding.
“I started my first law firm at the beginning of the Great Recession and saw many competitors run out of business. Those of us who survived are now largely thriving,” Hoelscher noted. “I learned that an aggressive approach to a potential slowdown is to prepare to dominate your market and run off competition.
The bottom line? “If your business is flush with revenue,” added Hoelscher, “you should plan to put it to good use now and increase investment in your company.”
Stefanski plans to follow this advice. He intends to put 70% of the additional revenue he generates this year back into his business.
“Roughly three quarters of that money will be devoted to marketing and the other 25% will go toward informational content we produce,” said Stefanski.
Kandell’s strategy is a bit more conservative but just as focused.
“I expect to invest approximately 10% of my income, much of which will go toward media and press coverage. I anticipate my expenses will increase 30%, including my base salary, leaving my profit ratio at 60% of income,” Kandell said. “But if an opportunity arises that promises greater return on investment, I would change my plan.”
To increase investment at his firm, Hoelscher and fellow partners agreed to forgo any pay increases until 2020; instead, they’re putting that money into a rainy day fund.
“I believe you should reinvest as much as possible back into your business until you decide you don’t want to grow anymore—as long as you have enough credit or reserve funds to weather bad times,” suggested Hoelscher.
To ensure you invest wisely, Kandell recommended devising a carefully thought-out long-range plan that looks ahead at least three years.
“This plan should have specific known performance indicators that show milestone goals your company should reach and that can point you toward the best areas in which to invest in your business,” said Kandell. “I would also enlist a financial professional for expert guidance.”
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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