How Much Money Should You Invest In Your Business?
The idea of investing in your business is something every freelancer and business owner has to deal with at some point. In fact, I would venture to say it’s something we need to deal with multiple times.
It’s also a topic that is coming up a lot lately. I recently went to a lunch with a couple of fellow freelancers where the discussion of investing in our businesses came up. One of my friends was having a bit of an internal battle over debating whether she should just invest in her business or keep more money for herself.
Someone recently posed a similar question in a Facebook group I belong to. “What is a normal amount to invest in your business?” they asked. The answers were all across the board. Some people were saying “No more than 30 percent is what you should shoot for” while others were saying “I’m investing over 50 percent in my current business and it works for me.”
The reality is there is no textbook answer here. A lot of it just depends on you, your business and your current financial situation. Here how to determine how much you should invest back into your business.
Where is your business going?
A lot of people go into business without an actual plan. By having a plan – or at least some sort of idea of where you want the business to go – it will become easier to determine how much money to invest in your business and when.
For example, I knew I wanted to reach a lot of people and build multiple streams of income. Around two years into my business, I realized we needed some upgrades in order to make this happen. It came time to invest, and because I knew where I wanted to go it was easier to figure out how much money I would need to put back into the business.
Here’s another example. If you just want to remain the sole person in your business then you may not need to invest much. If you want to build a team and scale, then you will need to invest.
Trial and Error
I apologize to those of you who wanted an exact percentage of the amount of money they should invest back into your business because you’re not going to get one. The reality is there’s a whole lot of trial and error involved here.
I’ve made major investments I later regretted, but now I know not to invest in those things. I also haven’t invested enough in the right things, and once again it was just something I had to learn from experience.
One thing my accountant told me to keep in mind was to invest slowly to account for the errors. In other words, you may not want to go crazy spending money so you can allow for some wiggle room in case something doesn’t work out.
What’s your comfort level with investing?
How much you invest back into your business may just depend on how comfortable you are investing. For example, I’m pretty risk averse and methodical with my money. I don’t make investments lightly. However, when I do decide to invest I invest big time.
This is just my process. It may not be yours. Just like you may be comfortable using credit or debt to invest in your business whereas I shudder at the idea. There are plenty of successful business owners who have done both with no issue.
The key lies in knowing where you stand in your comfort level with investing. Just like you need to know your risk tolerance when investing in the stock market, you also need to know it when investing in your business. At the end of the day, they’re both a form of investing anyway.
Once again, everyone is different here, which is why there’s no right answer.
When it comes to determining how much money you should invest in your business, there’s a lot of trial and error to find out what works for you. For this reason, it’s difficult to pin point the exact amount you should be investing. By getting clear on your business plan and checking your comfort level with investing, you’ll be able to determine what works best for you and your business.