The famous entrepreneur you follow on Instagram has just posted photos of the new video equipment she has just purchased. Members of your favorite Facebook group are about to invest in Facebook ads. And your best partner just expanded their product line by placing a big order.
All of this doesn’t mean that you in turn have to buy new video material, run online ads, or order more stock. At least not without an action plan.
Whether you are excited about investing in your business, or on the contrary intimidated, it is by documenting yourself in advance and planning your initiatives that you will be able to invest effectively in your activity.
There are three main considerations to make when deciding if you are ready to invest money in growing and scaling up your business.
Here’s what to get straight before investing in your business:
Once you have clarified these three points, you will be in a better position to make strategic decisions about the sums of money to invest in the development of your activity.
finances of your business
Before investing more money in business optimizations and opportunities, you should have a good understanding of your business finances. More specifically, you need:
Although you may feel like you are encroaching on your accountant’s territory, the reality is different. Indeed, while your accountant can be a trusted advisor and even a close confidant, ultimately he does not occupy the role of chief financial officer. Ultimately, it’s up to you to make the business decisions that make the most sense for your business.
Ultimately, it’s up to you to make the business decisions that make the most sense for your business.
The advice provided by accountants and financial planners is invaluable in helping you find your bearings, but it’s you who will ultimately have to make the final decisions — whether to invest or wait for a better time.
How much can you invest?
This is a tricky question, since the answer depends on several factors. If you want to quickly scale your business, you could skip a salary and invest the money saved in marketing initiatives. This is the approach that Steven Smith followed when he grew Evein Luxury Car Care, his online store.
quickly as possible. After a few months of optimizing ads for better returns on investment, we were able to generate the same revenue for a third of the budget invested – this is what allowed us to invest three times as much in the delivery of the ads perform better and ultimately achieve great success. »
“If I had paid myself a salary up front, we wouldn’t have been able to do this optimization work or increase our bids for the most profitable ads. »
Not everyone can afford to start a business without paying themselves a salary, but Steven makes a sensible point. The money you are going to invest in your business must come from a source.
The money you are going to invest in your business must come from a source.
Profit first or “Profit First” in English; it’s one of the easiest systems to manage your business finances and determine where the money you’re going to invest will come from. Profit First is a very intuitive system that is described in Mike Michalowicz’s book.
This system makes it possible to divide the movements of money carried out by your company into four categories:
The amount of money that will be injected into each category will depend on your niche and the size of your business, and Michalowicz shares some very simple formulas to follow in his book. Here is an example with real numbers:
Let’s say your business generates $2,000 per month in revenue — that’s the total revenue generated by your sales.
You follow the Profit First approach, which is equivalent to determining the percentage of total revenue to inject into each category based on your specific case. Let’s continue with our example:
The amount of money to allocate to each category is flexible and depends on the realities of your business. Regardless of your turnover or how you split the percentages, you will be able to clearly see how the money is split and find a source to take the amount to invest from.
In the example above, if the amount allocated to operating costs barely covers the cost of goods sold, it will be impossible to take money from this source/category and reinvest it in the growth of the business. the company. If you found yourself in this situation, it would mean that you should either consider reducing your compensation or not paying yourself a salary – both options would be viable. Ultimately, only you can make an informed decision that’s right for your situation.
What are your annual financial forecasts?
Perhaps your business is new, growing at a steady pace, or impacted by seasonal fluctuations. In all of these cases, a monthly view of your financial movements might not provide you with all the information you need to make strategic investment decisions.
This is where annual financial forecasting comes in. By checking out our blog post: The Guide to Financial Forecasting for Seasonal Business , you can learn how to use a preconfigured and downloadable Excel template to make annual financial forecasting . It could also help you balance your expenses over the year. If you want to invest in a redesign of your website during the low season, no problem, as long as you do it taking into account the annual context – and that you do not fall into financial difficulty at the end of the year because of your investment.