How to Make Wise Investment Decisions as SME Owners
As small and medium-sized enterprises (SMEs) expand, profit generally increases. A common question would then be, what should small business owners do with the profits earned? Investment decisions, in particular, can propel your business forward or lead to setbacks. Here is a guide to equip you with the knowledge to make wise investing choices for your SME’s investment portfolio.
Align Investment with Your Business Plan
As a business owner, investing your profits strategically is crucial for growth and expansion. Your investments should directly support your business plan’s goals. Consider how potential investments will contribute to your long-term plans. For example, if your plan involves expanding into new markets, investing in marketing or sales initiatives can be beneficial.
Investment decisions should then be an extension of your overarching business plan. Questions to consider include:
- How will this investment portfolio contribute to achieving our long-term business goals?
- Does this investment fit with our core business activities and target market?
Investing in ways that deviate from your business’s core strategy can create unnecessary risks. By aligning your investments with your goals, you can ensure your business is on a solid path toward success.
Put Your Business Needs First
Avoid impulse spending and focus on essential spendings that address immediate needs. These include:
- Upgrading equipment to improve efficiency and productivity
- Allocating resources towards essential marketing efforts
- Investing in employee training to boost skill sets
Leverage Government Support For SMEs
Under the SkillsFuture Enterprise Credit (SFEC) scheme, SME owners and their employees can attend courses to upskill themselves. Business owners can also make use of the different government grants to grow and expand their business. One such grant is the Productivity Solutions Grant (PSG), where businesses can adopt IT solutions to be more efficient.
Conduct Due Diligence
Conduct thorough due diligence before making any investment. Look into the product or company you’re interested in. Check how much money it makes, how much it owes and how it is doing compared to similar products or companies in the industry. Evaluate any potential risks such as market volatility, regulatory changes or technological disruptions.
When you have the full picture, you can make an informed decision.
Focus On Cash Flow Stability
For SMEs, maintaining a healthy cash flow is important. Do not invest in products that lock up your money for a long time, as this could put your day-to-day cash flow at risk. Look for investments that gives you your capital back quickly or help your business grow in the long run.
Some investment types to consider include:
- Stocks: When a company does well, the people who owns its shares can make money in two ways. The first is that their shares will be worth more, or the company can pay dividends periodically.
- Bonds: They are debt instruments issued by entities such as the government and corporations. Bondholders receive interest payments regularly and get their principal back upon maturity. Bonds are safer investments than stocks but they also offer lower returns.
- Treasury Bills (T-Bills): The government backs T-Bills, making them safe short-term investments. They typically offer lower interest rates compared to other products. Businesses will receive interest payments on top of the face value at maturity.
- Singapore Savings Bond: The Monetary Authority of Singapore (MAS) sells bonds that mature in up to 10 years. The longer you invest in it, the higher the interest rate. You can redeem your bonds earlier at a lower interest rate, giving you some flexibility in cash flow.
Seek Expert Investment Advice
Seek professional guidance who can help develop a customised investment strategy tailored to your specific needs and risk tolerance. Banks such as UOB offer tools such as UOBAM Invest to help aggregate your goals and design a customised investing plan for your business.
Monitor and Adapt Your Investment Profile
The business landscape is constantly changing. Regularly monitor your investments and their impact on your business. Be prepared to change your strategy as market conditions or your business needs change.
To effectively monitor and adapt your investment profile, consider the following strategies:
1 Regular Review and Evaluation of Your Investments
Schedule regular reviews every 6 months to assess the performance of your investments against your financial goals. You can also measure your investments against relevant benchmarks to gauge their relative performance.
2 Consider Alternative Investments
Regularly review your asset allocation to ensure it remains spread across different assets such as stocks or bonds. Consider alternate investments such as real estate, commodities or private equity to diversify your portfolio.
3 Stay Informed of News and Trends
Keep up to date with economic news, industry trends and company developments that could impact your investments.
4 Emotional Discipline
Resist making impulsive decisions based on short-term market fluctuations. Stick to your long-term plan, even during periods of market fluctuation.
By following these guidelines, you can make informed decisions that drive your SME’s growth and sustainability. Remember, a well-planned investment strategy is essential for long-term success.
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Apply TodayFAQs On Investing As A SME Owner
Aligning our investments with your business plan is crucial. Ensure that your investments directly support your long-term goals and avoid unnecessary risks.
Focus on essential investments hat address immediate business needs rather than impulse purchases. Prioritise investments that improve efficiency, productivity or market reach.
Look at factors such as the company's financial health (income statement, balance sheet, cash flow), industry trends, competitive landscape and potential risks. For financial products, it is best to consider factors such as associated fees and charges.
Consider investing in a variety of assets, such as stocks, bonds, real estate, commodities or private equity. This can help spread risk and reduce the impact of market fluctuations.
It's generally a good idea to consult with a financial advisor who specialises in SME investments. They can provide personalised guidance and help you develop a tailored investment strategy.
Regularly review your investment portfolio to assess its performance and make necessary adjustments. Reviews should be conducted annually, or more frequently if your business needs change significantly.
