When entrepreneurs hear investments, some might think it is irrelevant to them. After all, they are focused on business financials, and investment is often perceived as personal investment. Which it’s not. So what is it?
Investments take many forms. Pedri Reyneke from Findotec explains that this can be personal or business-related; it can be investing in your business, as well as for your business, and a good financial advisor will tell you where your money is best spent.
Investment As An Enabler
Investments in the market are a good long-term strategy to ensure sustainability and reduce risk.
“Entrepreneurs should consider investing as soon as cash flow allows it,” Reyneke says. “It gives you, as the entrepreneur, security and peace of mind that your family is safe.
“The biggest investment mistake small business owners make is only investing in themselves,” he says. “Looking at traditional investment, another mistake is either being too aggressive or too conservative. They struggle to find the right balance. Entrepreneurs are normally aggressive people, so now they think the investments must also be very aggressive, but we must see it actually as a diversification. On the other hand, they are too conservative.”
He shares that approaching a qualified financial advisor can help strike this balance.
Focusing on good investment principles.
Reading resources from investment experts, like Ray Dalio, helps you understand finances and the economy at large.
Reyneke notes that when you look at “investments”, the question shouldn’t only be how you use business funds to grow capital through investing. Instead, business owners should see it as a tool to achieve a larger goal. “Some may use an investment account as an incentive for their workers, others may use it to help their employees become financially secure.”
He uses the example of an agreement between an employer and employee that states that the employer will deposit a certain amount of money into an investment account on behalf of the employee for their child. Conditions can relate to a certain number of years of employment or as a company benefit.
If the business isn’t financially capable of offering that to the employee, they can arrange for employees to meet with a financial adviser and explore investment options.
“I have seen entrepreneurs who are eager to use investments as a way of investing in their staff. Many, especially older entrepreneurs, understand that investing in their people is a small gesture that goes a long way, simply because they understand that they need their staff,” he shares.
Not only does this ensure that your staff won’t have so much financial stress that prevents them from working productively, but it also helps curb staff turnover.
Reyneke reminds business owners that benefits such as a medical aid, provident fund contribution and assisting employees with a secure financial future through investment are all tools that make your business more resilient. A medical aid, for instance, ensures that a staff member who falls ill can immediately access medical care without spending days away from their job, standing in a queue at a clinic. Quicker treatment means a quicker return as a healthy employee.
Future-proofing a Business Through Investments
Whether it is investing in the market to secure capital for the future, or investing in staff in other ways, it all boils down to future-proofing your business.
“Again,” he highlights. “Investments should be a term that isn’t just seen as money markets. It’s looking at the return on investment across all areas of business.”
According to Reyneke, this ties in closely with the mind shift that entrepreneurs need to make about long-term sustainability. “Many SMEs are okay with being subsistence businesses, but that offers little security. When the market changes – as is inevitable – or inflation suddenly rises, a business cannot keep up.”
The question is no longer whether you should grow your business, but how you grow your business. Business growth has a direct impact on its operational longevity, which can be enabled through many strategic decisions, of which investing in markets is only one.
“This is something that investment managers grasp: We recommend you buy shares A, B and C, because it diversifies and lowers your risk across an entire portfolio.” He elaborates that this mindset is what needs to be adopted by business owners. “It’s about diversification and not always in financial terms, sometimes it can mean new equipment, education and training or employee benefits.
A Note on Cash Flow
A recommendation that Reyneke makes is that business owners who worry or struggle with cash flow should consider hiring a financial manager. “This allows you to do what you do best: operating the business and focusing on the core tasks that inspired you to start it.” This can be manufacturing a product or delivering a service. “Bringing a financial manager on board means that the person who is an expert in a particular field can help you where you might struggle,” he concludes.
When entrepreneurs hear investments, some might think it is irrelevant to them. After all, they are focused on business financials, and investment is often perceived… Read More
