Investment Ideas for SMEs
Across the UK there are millions of small business owners deploying innovative strategies in an attempt to boost their profit margins. Often, they may fail to see the returns they were hoping for and rush straight back to the drawing board, but sometimes these strategies succeed - and land SMEs with a healthy influx of cash.
What happens, then, when your innovative marketing campaign delivers a hefty profit to your doorstep? What should you do with that extra cash, and how can you balance your newfound profitability with your business’ wider growth strategy?
That’s what we’ll be touching on in this article, as we share our ideas for how small businesses can look to leverage their success and reinvest profits into the business for growth.
What is investment?
Firstly, though, what do we mean by investing? Investopedia defines an investment as ‘an asset or item acquired with the goal of generating income or appreciation.’
When judging the value of an investment, there are several factors to consider. For example, if a local bakery were to purchase a new commercial oven;
- How would this affect its bottom line? Would increasing the output of goods enable the business to make more sales during busy periods?
- What are the short term versus long term ramifications of acquiring this new asset?
- Is the initial capital investment likely to damage the business’ cash flow in the coming months?
Choosing how exactly to invest in growth can be difficult and opportunities are typically compared with a view to maximising returns. In fact, there are few ways in which profits cannot be considered investments – with examples being if they’re withdrawn from the business for personal gain, or if they’re simply ignored and sit in business’ current accounts.
Types of business investment
Here are our picks for popular ways in which businesses can invest, along with the pros and cons.
While it may feel a little mechanical to label human beings as ‘assets’ within the business environment, investing in people can be game-changing – especially for smaller businesses.
Bringing on a new hire who specialises in recruitment and people-management, for example, could dramatically upgrade your HR game and result in your business filling out its vacant roles with the right talent.
It’s also worth weighing up the potential expenses involved with hiring new staff members. External recruitment agencies may charge fees for their work, and you may need to pay to list on certain jobs boards – so investing in people could prove to be a costly but potentially highly rewarding venture.
It’s always a positive thing to have extra cash in the bank to play with. One important consideration to make is whether that cash is currently serving your business’ best interests – or whether you could be mobilizing it to make it work harder for you.
For example, you could look to deposit cash into a business savings account with a high interest rate that offsets inflation, thereby slowly growing your accumulated wealth each year. Having this cash reserve that you can dip into in a time of need may also positively impact how external investors assess your business; giving them the peace of mind that your business may be able to weather the storm under difficult circumstances.
Buying into other businesses
If you’re a market leader, it may be worth exploring your options around investing into competitor businesses. While it could prove to be a less stable method of investing than boosting your savings, the potential profits that could be generated by investing into other incorporated businesses could be large.
This may be an especially attractive option for businesses that have hit their natural ceiling and are no longer able to release new products or capture additional market share. For these companies, investing in competitor businesses (or even purchasing them outright) could grant access to new customer bases. Marvel comics used this very strategy in the 1990s; purchasing Malibu Comics to solidify their position as market leader.
Acquisition of assets
An alternative strategy for mobilising your excess cash is to invest it into assets that directly benefit the business in the short term. This could make for a particularly low-risk investment if the assets you’re acquiring have good resale value.
Of course, there are many types of assets you could consider. For example, a physical asset such as a new piece of equipment could immediately impact your business’ outputs. There are also intangible assets to consider - you could purchase a patent to protect your business’ unique creations.
Diversifying your digital strategy
Challenging your existing processes in terms of how you connect with your customers may also prove to be an effective way of using your profits. In the digital world in which we live, have you considered whether you’re running the right activity across all the channels that could help your business grow?
Within social media alone there are a wealth of platforms such as Twitter, Facebook, and LinkedIn that you could be advertising on. There’s also SEO to consider; have you taken steps to optimise your website content and improve your visibility in search engines?
Investing in ads can often be done very gradually, rather than requiring huge sums of cash. For example, if you’re running Google Ads, you could look to slowly increase the amount of money you’re spending to bid on keywords that are important to your brand – then scale your expenditure based on the returns you’re seeing.
We hope our ideas around how you could look to invest for growth have helped to spark your creativity. You may also enjoy our insights around managing your business’ costs.
How could Rapid Cash help?
Whether your business is in a position whereby it’s enjoying healthy profits, or just managing to make ends meet and cover its costs, strengthening cash flow may always seem like an attractive prospect.
At NatWest Rapid Cash, we look to support small businesses with their cash flow by offering an innovative financing product that is designed to help businesses invest for steady, gradual growth.
If eligible, the Rapid Cash solution can integrate with your accounting software, and it could offer you a line of credit that enables you to take out a cash advance against your outstanding invoices. Our flexible product allows you to choose which of your invoices you’d like to borrow against, and it could mean that you don’t have to wait 30, 60 or 90 days to be paid.
If you’re interested in learning more about Rapid Cash, read about how our solution works.
To be eligible for Rapid Cash, businesses need to have been trading for a minimum of six months and have an annual turnover of at least £100,000. Businesses need to be a limited company or a limited liability partnership in England and Wales. Additionally, you need to invoice other businesses and use one of the following digital accounting software: Xero, Quickbooks, Sage 50, Kashflow, FreeAgent and NetSuite.
Security and guarantee required. Product fees may apply.