How to grow your business through smart capital investment

As a small business owner, you already know that growing your business is incredibly challenging. The phrase "you've got to spend money to make money" exists for a reason-to develop operational capacity or generate new business, you often have to invest capital.

The key to mitigating your business risk as much as possible is to invest capital wisely. To intelligently make investment decisions, you need to know your working capital. You should determine with your accountant the financial runway you need to keep your company afloat if business slows. If you rely on consistent sales, you'll likely need around six months of working capital. If your business uses a recurring revenue model, such as retainer billings, you'll probably want about three months of working capital. Once your runway is accounted for, you've got options.

You can take any remaining working capital out of the company, spend it, or reinvest it in your business's next growth phase. Here are a few areas you might want to prioritize investing your working capital in to grow your business:

People

Service-based businesses usually require people to perform the work, such as freelancers or consultants. Since you only need to pay them for their services, you can more flexibly control their costs. However, they can cost a lot more than permanent staff.

With available capital, you may choose to invest in additional employees to keep more work in­house while reducing spending on third-party vendors.

Equipment

If your business heavily relies on technology or manufacturing, consider investing in equipment to increase production capacity. If you're renting critical equipment at a high monthly price, purchasing it instead will be more cost-effective in the long run.

Space

Although the COVID-19 pandemic has certainly changed the role that office space plays for most companies, your business might require a brick-and-mortar location. In this case, you should consider using your available capital to purchase or lease a space or improve your existing one.

Existing or new verticals

You could also use your available capital to fund sales and marketing efforts for your existing business or a new vertical, i.e., a new product or service. Getting new verticals off the ground takes a lot of time and money, but they can also expand your potential profit exponentially.

You can, and should, prioritize your investments based on the type of business you own. If we can help you understand your working capital, monthly overhead, and financial runway to grow your business, contact Syzygy today to hear more.