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New Business Investments and Your Financial Health

One of the greatest challenges today’s small business owners face is tackling their finances. As CEO and president of AmeriMerchant David Goldin tells CNBC, “The No. 1 reason people fail is, they run out of money.”

Research bears him out. According to a U.S. Bank study, a whopping 82% of businesses that failed cited cash flow problems as a top factor in their demise. Keeping track of invoicing, purchase orders, balance sheets, and profit and loss statements can feel like a herculean task, especially if you don’t have a strong financial background.

These concerns can become especially heightened when it comes time to make a new business investment. Whether you’re looking to expand your workforce, update your IT infrastructure, or simply purchase a new coffee machine, expanding outside of your typical, day-to-day financial structure can quickly cause strain to your business finances.

When considering any purchase for your business, be sure to use the following tips to make smart business investments, reduce financial stress, and keep your financial health in check.

Conduct a Financial Wellness Status Check

Financial wellness, put simply, is the ability to have a healthy financial life. It means that your debts are payable and you have ample funds for any unforeseeable expenses that may arise; you’re well prepared to handle any financial crisis.

In short, financial wellness is also about feeling good about your current financial health now and in the future.

Before committing to or planning any business investments, it’s vital to check in with your business’s financial health. Do you have enough incoming cash to meet your current expenses in addition to a new purchase?

Will a new investment put you in the red, or will it propel your business forward?

Be sure to check in with the financial wellness of your employees. Would a new business investment be a detriment to your workforce’s financial status? An ongoing financial guidance program can help you better understand your employee financial well-being and can help you make investment decisions that are equitable to both you and your workforce.

Don’t Make Big Investments Early

There’s a popular notion going around that small businesses should make large investments early on, taking big risks in the hope of massive growth.

Many people call this the moonshot model (like shooting for the moon), and commonly refer to this strategy when discussing unicorn companies like Uber and Airbnb. These companies spent massive amounts of money on promotion and expansion, forgoing the incremental growth model used by most companies.

Although this strategy can be seemingly effective, it also poses a major financial risk. Dedicating a large sum of money on the front end to marketing, advertising, or other similar budgets doesn’t always secure a return on your investment and could leave you lacking in cash flow if sales fail to produce right away.

older man working with employees

Wait to take financial risks until you have an appropriate amount of money in the bank, and be judicious when it comes to spending on front-end expenditures like marketing, customer service, or promotion.

Use your early budgets instead on your back-end processes and operations. This investment will likely prove to be more valuable in the long run.

Consider the Long-Term Benefits or Drawbacks

Far too many purchases are based on impulse decisions. Although this is fine when it’s a $1 chocolate bar at the supermarket, it becomes a larger problem for more significant purchases—especially as they relate to your business.

Before buying something, think about how it will affect you and your business in the future.

Take technology investments as an example. As you begin investing in new technologies for your organization, it’s critical to partner with vendors that place a priority on continuous research and development (R&D) in their products. This ensures your organization is not only current on technology when you first implement it, but continues to stay up-to-date on emerging technologies in the future too.

Working with a vendor that consistently updates its products with the latest features and capabilities offers you a better return on investment and also lowers the risk of technology obsolescence.

That said, not all vendors put forth the same investment into R&D. For example, cloud services company Infor dedicates just $489 million annually, whereas other leaders in the space spend up to $6 billion. Be sure to inquire about R&D before making your investment.

Don’t Spend Time to Make Money

Time and money are the two finite resources that the world wants most, and at times it can seem like they’re mutually exclusive.

There’s an obvious incentive for cash-strapped entrepreneurs to try to do everything themselves—it doesn’t cost any money. Avoid falling into this trap if you can, as it could cause you to spread yourself too thin.

Don’t be afraid to make useful investments if it helps you regain valuable time. You may want to consider hiring a freelancer, promoting a current employee to delegate tasks to, or adopting an automation-based tool.

Although these are all substantial investments, they can allow you to spend less time on tasks that don’t necessarily require your attention as a business owner, and you can instead focus on the long-term strategic direction of your business.

Planning and executing a new business investment can be an intimidating process as a small business owner. However, with just a few changes in planning and perspective, the process becomes a more simple and less stressful undertaking.

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