I often hear from business owners requesting financial advice—as in, "Where should I put my money? Stocks? Bonds? Gold?"
In recent months, traditional investments have experienced extreme volatility—in the last month alone, the Dow Jones has experienced several swings of over 200 points in a single day.
With that in mind, my answer to business owners is usually "none of the above."
Instead, I believe that most of the time, the best investment a business owner can possibly make is in his own business.
Assuming that you have built a sustainable and profitable model, investing in your business will typically lead to returns far superior than those you could earn through financial markets.
Investing in your business is more than just depositing extra cash in your bank account, however. You need to create a plan—and invest with a purpose in areas that are likely to grow your business and increase profitability. Below are three common ways to accomplish this:
1) Invest into your workforce. Will hiring additional employees allow your operation to handle a greater volume of work? The key calculation here is "how much will an additional employee cost me next year, and how much additional profit will he or she generate?" If you’re not ready to hire, consider investing in additional training or educational programs—as long as they’ll provide value to your business.
2) Invest in modernized equipment. Whether it is computers, vehicles, machinery, or other products, new equipment will often dramatically increase the productivity of your team—adding profit to your bottom line. Don’t do this haphazardly, however—in some cases, it may be fine that your computers are five years old. Only invest in equipment if there is a clear and valuable purpose behind it!
3) Invest in marketing. If your business has the capacity to handle more work than you currently have, there’s little point in increasing your capacity until you’ve created the demand for your services or products... and that’s where marketing comes in. Evaluate your current marketing efforts and identify the tactics that are providing you with the highest ROI (return on investment). If you aren’t tracking this number, you need to be—it’s essentially a measure of how much profit every dollar spent on marketing generates. Invest in the marketing strategies that have provided the strongest ROI—and continue to track the results.
Forget the stock market. These days, you’re more likely to wind up with an ulcer than you are with a great return on your investment. Instead, evaluate your business and identify opportunities to increase your revenue, your efficiency, and ultimately your profitability. Your business is the best investment opportunity you have—so take advantage!
[Image: Flickr user vetustense]