Broadly speaking, there are two types of business owners: those who invest everything into their businesses, and those who diversify and invest capital into investment accounts and products.
There is no right or wrong. For most business owners, building their business is a way to leave a legacy. However, many business owners choose to diversify their risk, even while focusing on the growth of their companies. There are many benefits for business owners to invest outside of their companies, not just from a wealth-building perspective, but because in many ways it promotes good financial habits that will ultimately also benefit the business.
Before we look at what those benefits are, let’s address why some entrepreneurs do not invest their money.
For some, it comes down to a simple lack of time. Running a business can be time-consuming, and business owners may not have the time to research and evaluate potential investments. There is also a lack of knowledge to consider. Many individuals do not have the knowledge or experience to comfortably make informed investment decisions. There are of course other barriers, including cash flow issues, with business owners choosing to keep enough cash on hand in the case of unexpected financial challenges or in an emergency fund. Business owners also want to be able to afford loan repayments without negatively impacting the business’s financial position, which is why it’s so important to understand the business and its needs– credit products should add value to the business, not create bigger problems.
The benefits of investing
In my experience, these challenges are all relatively easy to overcome, particularly for business owners who work with financial professionals.
Regularly saving, investing and leveraging the right loan products can teach business owners several good money habits:
Discipline: By setting aside money for investments on a regular basis, business owners learn to be disciplined about their spending and prioritise their long-term financial goals.
Patience: Investing often requires patience as it may take time to see returns. By investing regularly, business owners learn to be patient. This is an excellent trait when building a start-up, which can take many years to enter a growth trajectory. As the saying goes, overnight success takes ten years to achieve.
Planning: When creating a plan for saving and investing, business owners learn to think ahead and plan for the future. This includes setting specific goals and identifying the steps needed to achieve them.
Making the most of smart investments
Ultimately, how business owners choose to grow and diversify their wealth is based on individual needs and circumstances, however, if you are considering investments, here are some helpful guidelines:
Start early: The early you begin investing, the more time your money has to grow.
Keep an emergency fund: Investing is not an either/or choice over your business. Always ensure you have some cash savings for unexpected events or emergencies that might happen in your business or personal life.
Educate yourself: It’s important to understand different types of financial products that are available to help your business and wealth grow and how they work so that you can make informed decisions.
Focusing on the future
Over the years, I have encountered many business owners who focus on achieving key revenue goals and reinvest all surplus cash until they have done so. Others make short-term decisions, such as purchasing lavish cars, which are depreciating assets. This can be detrimental to the bigger picture, which is long-term wealth creation.
Ultimately, what does your business need to succeed, and how can you make smarter money decisions to help you get there?