Investing in your business

First published 17 December 2018 • Updated 31 October 2019

Investing in your small business

Getting an injection of cash for your business can be the difference between long-term growth and having to shut up shop early. Lots of small businesses fail to invest properly in their own growth, so it’s important to know when to get extra help and how to go about seeking investment.

  1. Small business investment explained
  2. How to tell if you need business investment
  3. How can investment help my business grow?
  4. What types of investment could I get for my business?
  5. Which business investment should I get?

Small business investment explained

Any money spent on running a business is an investment. Whether it’s come from your own funds or an external financer, as long as it is used to grow your company it is classed as a business investment.

For example, you might

  • Buy new equipment / IT
  • Hire more staff
  • Provide staff training and development
  • Move into better premises
  • Pay for advertising, PR and marketing
  • Develop your brand
  • Patent and/or protect your intellectual property

All of these examples involve spending money on your business in the hope of achieving better success in the long term – hence it is investing in your business. Read on to find out more about business investment and how an accountant can help.

How to tell if you need business investment

It’s always a big challenge to start a business and to grow it, so it may be hard to tell exactly when you might need to inject more funds into it. For example, you might find you and your staff are working long hours but not managing to grow the business much. Or you may be struggling to reach sales targets or feel that your marketing isn’t having the impact you want. Other signs that you need investment could be that you’re falling behind the competition and need to be more innovative or staff morale is low.

High staff turnover, stagnant (or falling) revenue and failing to hit annual targets are all signs that your business needs investment. Another sign could be something as simple as the state of your premises – does your shop front look tired, or is your office drab and off-putting to new recruits? A little smart spending now can prevent greater costs later on.

How can investment help my business grow?

Here are the key areas in which your business might benefit from investment.

People

Your team will be the driving force behind where your business goes – not for nothing are people known as ‘the biggest business asset’. By investing in training and development, you can equip them with the skills and knowledge they need to progress your business effectively. It also pays to invest in your company’s culture, which can be anything from providing a supportive onboarding programme and offering rewards to running team building days and creating a comfortable and motivating workspace.

Employee benefits are a very popular and effective form of people investment. An attractive package might include a good workplace pension, flexible working, extra holiday, company car schemes, cycle-to-work schemes and season ticket loans to name just a few perks. These can appeal to new prospective recruits and can be cheaper than offering more salary.

Equipment and processes

Outdated machines and manual processes are likely to slow you down and hinder long-term growth. Look ahead to get an idea of your future needs and invest in up-to-date equipment in good time. If your business is mainly online then take extra care to keep pace with technology, as competitors can quickly overtake you with systems that are more modern and user-friendly.

Market research

Checking out the competition and opportunities doesn’t come cheap, but done properly it should pay for itself. Market research has two key benefits above all: staying in touch with your core market, and identifying new opportunities and risks.

Research and development (R&D)

Does your business need to innovate? Are your competitors coming up with new and better solutions to the same problem? R&D that advances scientific or technological knowledge may be eligible for government funding, so it’s worth looking into.

Marketing

Nearly every business needs to carry out marketing of some sort. Marketing is simply about reaching prospective customers and making them aware of your products or services. This is a particular challenge for a small business, so help from marketing experts can make a world of difference.

What types of investment could I get for my business?

There are three main ways to secure investment for your small business.

Debt

Debt funding involves taking out a business loan, usually from a bank, building society or other lending company. Some are secured against company assets (rather like a mortgage), while others are unsecured and based on your finances. You’ll have to meet their eligibility criteria, which means you’ll need a good credit score, an impressive business plan and a clear explanation of how you’ll use the money. The stronger your case, the more you’re likely to be able to borrow.

Private equity

This involves selling a stake in your business to a wealth investor (or group of investors) in exchange for a cash injection. Usually the stake you sell will be no more than 30 per cent, and in return the investor may also provide business support and guidance. Such investors are often known as ‘business angels’ because of this additional advice. Angel investment is particularly popular among start-ups. Again, a strong business plan is a must.

Reinvestment

You can plough a portion of profits back into your business rather than take them as income. If you can afford to do this then the benefits can be significant. You avoid debt and the associated interest payments, and you don’t dilute your equity share in the business, so in real terms it is by far the cheapest option. Furthermore, if you do later seek debt or equity funding, your future investors will be impressed by this show of confidence in your own business.

Find out more about business fundraising.

Which business investment should I get?

The right choice of business investment will depend on your personal circumstances. If you’re making a healthy profit and can afford to forfeit some of it, then reinvestment profits may be the most efficient option.

However, if you want fast growth but aren’t sure how to manage it yourself, then help from a private equity investor should provide the expertise you need.

Finally, debt funding from a bank may be most appropriate if you want to keep a 100 per cent equity share but can’t afford to sacrifice a large chunk of your profits.

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About the author
Nick Green
Nick Green
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.