facebookIf i own/run a relatively small business, should i put my cash back into the business to grow it even further or should I invest them? Any self-employed or business owners able to advice? - Seedly

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Anonymous

18 Apr 2019

Events

If i own/run a relatively small business, should i put my cash back into the business to grow it even further or should I invest them? Any self-employed or business owners able to advice?

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Richard

21 Aug 2024

take care of oneself at the rest will be taken care

It depends whether you want to grow your business faster, if that is the case, put the cash into your business

It depends on the ROI that your business is generating. For instance, if your business generates $1.20 in after-tax profit every year for every $1 of capital that you invest, then your annual ROI is 20%.

Makign 20% consistently in public equity markets, year after year, for decades, is exceptionally difficult. The historical return of the S&P 500 for the past 100 years is about 10%. Only the best hedge funds manage to earn 20% returns in the long-run. If your business' returns exceed the returns you can make in the public markets, then it's a good idea to invest it back into your business. Don't forget that growth compounds, and it can compound especially quickly in a small business that eventually scales up into something big. If you run your business well, every $1 that you invest into it now can grow into something quite massive given enough time.

Just like with the stock market, it's important to prevent losses. Buffett's No.1 rule is: "Don't lose money". With a business, make sure that you implement proper risk management processes. Having a comprehensive business insurance policy can prevent you from losing the mone you invest into your company. Strongly consider Professional Indemnity Insurance to protect you from business lawsuits. If you have physical goods or a physical premises, make sure you carry Commercial Property Insurance. You also should consider Work Injury Compensation Insurance to cover you from liability for employee injuries.

Best of luck growing your business!

If your business generates higher returns than what you would get from investing it (in the stock ma...

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