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How to invest in your business (and pitfalls to avoid)

Running a business is hard work. Growing that business is even harder. That’s why many business owners struggle to identify their best investment strategy.

Let’s say your small business is at a turning point. Hard work and efforts are finally paying off, and it’s time to consider investment. You want to see it grow. You want to take it to the next level. But where do you begin?


Determining How Much to Invest in Your Small Business

As you contemplate investment in your small business, first consider your financial position.

Your business finances and personal finances must be examined thoroughly. Then, you need to determine the type of investment. There are the traditional investment types like debt and equity. But there’s an alternative option that’s easier to implement and lets you see savings realized more immediately.

And finally, we’ll discuss some of the common pitfalls to avoid when accepting outside investment.


First, reflect on your progress and goals up to this point:

Your business is uniquely yours. There’s no easy investment strategy that works for everyone. So as you discern the best path forward, remember that you have to do what’s right for you.

Consider the financial state of your business

What is your annual revenue? What are your goals? What is your strategic plan and how will you get there? Are you hitting your annual forecasts? Before seeking an investment, you need to be in a position of financial clarity.

Consider your personal finances

If you rely on business income as a primary salary, determine exactly how much you need for your personal living expenses. Then consider re-investing anything above that amount. Any investment options you consider must ensure you’re able to pay yourself what’s needed to live.

There’s no right answer for everyone

Your business is uniquely yours. There’s no easy investment strategy that works for everyone. So as you discern the best path forward, remember that you have to do what’s right for you.


Considering an Equity Investment 

An equity investment is capital in exchange for a percentage of business profits (and losses). This type of investment is riskier for the investor, as they only see returns if the business is successful. However, with great risk comes great reward, and an equity investment has the potential to pay serious dividends. 

If you’re looking for outside investors, think carefully about accepting equity investments. With equity comes ownership – and with ownership comes opinions about management. 


Considering a Debt Investment 

In contrast to an equity investment, a debt investment is a loan given in exchange for the promise of interest income and eventual repayment of principal. A debt investment is less risky for the investor, but also has lower reward.


Common Pitfalls to Avoid with Outside Investment

Lack of Communication

Accepting outside investment is a big shift for your company. Consider the impact on your company culture and morale. With big change comes potential for fracture. Make sure you’re upfront in your communication.


Incorrectly Valuing your Company 

As you think about valuing your company, make sure to portray the valuation as accurately as possibly. Overvaluation causes huge problems with future investors. Undervaluation causes you to lose potential earnings by giving away too much ownership.


Not Aligning with Company Values

It’s not just dollar sign value you should care about. Select investors that align to company culture. They don’t have to be best friend material, but they have to share similar values and expectations. Companies have failed by selecting the wrong investment partners.

They don’t have to be best friend material, but they have to share similar values and expectations. Companies have failed by selecting the wrong investment partners.


Inattention to Legal Details

Make sure to utilize legal counsel as you draft agreements, sign documents, and communicate with investors. The potential issues are numerous, so make sure you’re doing it all by the book, even if it’s a family member. Don’t take shortcuts.


An Alternative Option: Taking Advantage of Savings Opportunities

Rather than contemplating debt or equity investments, there is another way to invest in the success of your small business.

As a member organization, you can see savings across more than 20 categories like fuel, office supplies, payroll, waste services, insurance, and more. Investing time and resources in exchange for significant savings across a wide variety of expense categories is an easy way to invest in the continued success of your small business.

If the time isn’t right to invest, make the easy choice and save instead

Get Your Member Savings Estimate

Save time & Money: Put your membership to work and save on HR, Payroll, Fuel, and much more


As you look to grow your business in 2020, there are a few things to keep in mind. With smart evaluation of your financial situation and ample discernment, you can find an investment path that’s right for you. And don’t forget to focus on member savings – you’ll see immediate benefits!


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