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Why It's Not Risky to Invest In Your Business

Why It’s Not Risky to Invest in Your Business

Investing in your business can be one of the most focused, strategic, and productive financial decisions you can make.  If the environment and the indicators are right.  That’s because your business is one of your best investments.

However, if you listen to the conventional perspective of typical financial planning, you’ll be led to believe just the opposite. 

A recent conversation highlights this prevailing mindset perfectly.  After speaking to a roomful of business owners, I talked with one successful business owner.  He remarked,

It’s risky to invest in your business.  After all, most businesses fail, and it’s better to invest your money with people who know what they’re doing.

He’s not entirely wrong, and we’re all entitled to our own opinion.  However, this is a limiting belief that often holds business owners back from reaching their financial potential.  It’s like they have each foot in two separate worlds.  They’re building their business with their time, energy, and mental capacity to build a successful, thriving business on the one hand.  But on the other hand, they’re hedging their bets wondering if it’s worth investing in, or whether it’s all going to collapse. 

As a business owner, how do you build the real path to wealth?  There will come a time when you must decide whether to invest in your own business or to put your dollars to work somewhere else.  Should you invest in your business, or should you diversify?  How do you think about your business in the grand scheme of building long-term, sustainable, extraordinary wealth? 

In today’s conversation, we answer:

  • Should you invest in your business?
  • Is it risky to invest in your business?
  • What’s the best way to reduce the risk of investing in your business?

We’ll share our perspective to help you gain clarity and freedom to make financial decisions that align with your value system, congruent with your goals and objectives, and move you closer to time and money freedom.

You’ll gain confidence and peace of knowing you’re making the right decision of whether or not to invest in your business.

Where Does Investing Fit into the Cash Flow System?

Deciding where to invest is just one step in the bigger journey to time and money freedom.  You need to have all of the pieces in place to produce wealth systematically.

That’s why we have created the 3-step Business Owner’s Cash Flow System. It’s your roadmap to take you from just surviving, to a life of significance, purpose, and financial freedom.

Unique Ability Investing

The first stage is the foundation.  You keep more of the money you make by fixing money leaks, becoming more efficient and profitable. Then, you protect your money with insurance and legal protection and Privatized Banking. Finally, you put your money to work, increasing your income with cash-flowing assets.

Investing is part of stage 3.  It’s the step where you turn your money into more by investing in the best opportunities that help you achieve your goals.  Should one of those opportunities be your own business?

Should You Invest in Your Business?

First of all, in finance, there is never a blanket, one-size-fits-all answer.  As with making any prudent and responsible financial move, it depends.  Your unique set of financial circumstances, stage in business, and profitability largely determine the wisdom of investing in your business.

Secondly, there are differences of opinion and different financial objectives, and that’s ok.

Here’s why we believe that you should invest in your business:

  • A business is an income-producing asset.
  • It’s something that you know and control.
  • If it’s growing, cash-flowing business, investing in your business will allow it to grow even more.

Let’s consider your options in where to place your money to get it working for you.

Where Else Can You Put Your Money?

If you’re in a profitable business, paying yourself an income from that business, and have good money habits, you’ll have a portion of your income that you don’t spend on your current lifestyle.  You’ll pay yourself first before you spend because you’re building a cash flow system, not just a high income.

First, you need to build up an emergency/opportunity fund of accessible money that won’t lose value.  Then, you need to determine where to invest those dollars to appreciate or earn cash flow. 

Ultimately, you want to think about the purpose of your money. 

If your goal is to create time and money freedom, you’ll need income from your assets that surpasses your lifestyle. As you think about investing, you’ll need a good filter to help you find the best investments to help you achieve your financial goals.  Start by looking for a wise, calculated way, with the greatest stewardship, to minimize risk and maximize your outcomes.

When you consider investing in general, look for investments that increase your cash flow and minimize your risk as a way to move the needle on your financial freedom goal.  To get cash-flowing assets, invest for income, not just capital appreciation.  While any investment carries inherent risk, to minimize this risk, seek assets where you have knowledge and control.

Business and real estate are two ideal asset classes that meet these criteria of cash flow and control.

Besides investing in your business, where else could you put your money?  You could buy real estate, invest in another company, alternative investments, invest in the stock market, buy bonds, etc. 

To decide which investments are best, ask yourself how much control and cash flow you can generate with that investment.

Is it Risky to Invest in Your Business?

Before we talk about investing in your business, it’s important to define what a business is and what it isn’t.

What Is Business?

Somewhere along the way, you had the vision to create a product or service for others and get paid for your expertise.  You created a business. 

That business is an extension of you and your intellectual capital.  It’s the primary way that you find a need and fill it, profitably. 

To grow your business, you’ve poured your heart and soul into improving your offering, marketing, delivery, and messaging.

It’s important to point out here that there’s a big difference between owning a job and owning a business. 

As Robert Kiyosaki’s Cash Flow Quadrant demonstrates, if you own a job where your physical presence is required to provide the service and produce income, you’re self-employed. 

Instead, if you have scaled your business through teams, technology, and systems, and it continues to thrive when you go on vacation, that’s a self-sustaining business. 

Many business owners get their start as self-employed entrepreneurs working in their business. However, your goal should be to build a valuable, self-sustaining asset that works for you.

How Can You Invest in Your Business?

Investing in your business needs to be a wise and responsible financial decision.  After all, your end goal isn’t just a successful business; it’s a successful life.  Your business is one part of that journey that helps you get there.

In the early stages of business, you’re trying to find out what works to get off the ground.  You try, fail, learn, pivot, and repeat.  If you’re committed, you’ll usually expend some financial resources before you begin to see income.  At this point, the “business” isn’t yet a substantial asset.  It’s still in its infant stage, without a clear trajectory or timeframe to revenue and profitability.  Here, you’re bootstrapping a start-up venture that has substantial risk, to grow it into something worth investing in. 

Why It's Not Risky to Invest In Your Business

The risk at this level is that yes, many businesses don’t succeed.  However, you’re also exercising your entrepreneurship muscle, learning from each trial, and becoming the person who can build a successful business.  More than dollars, you’re investing yourself, your time, and your sweat equity.  Here, you’re forging your path, and you don’t know exactly how much or how quickly your efforts will pay off. 

Dumping a lot of capital into your business at this stage is risky.  You have to determine if it’s a risk you’re willing to take to earn the rewards of a thriving business.

As the business grows, your input to output ratio becomes much more predictable.  With a proven business model that has a history of profitability, you know the returns to expect from an infusion of capital.  For example, adding marketing dollars to an effective campaign is a savvy and strategic investing decision. Then, your business can grow, expand your capability to serve more people, and produce higher income for you.

If it’s proven that you can make more money in an established business than in stocks, why wouldn’t you invest in your business?

But what if you’re in the early stage and it’s not proven yet?  In that case, how will you invest in becoming the person who runs a business profitably that can prove to make you money?

Why Most People Believe Investing in Your Business Is Risky

There’s a prevailing assumption that it’s risky to invest in your business, but is it true for you? 

Sure, businesses can fail, and many of them do.  But many also succeed!  And behind every business is a business owner learning lessons through the failures that equipped them to go on to be a success in a successive endeavor.

One of the reasons typical financial planners don’t suggest you invest in your own business is that they don’t get paid when you do.  Most advisors will only get paid if you put your money under their management and stay invested.  Then, they make money, whether you make money or not.  They aren’t incentivized in any way for you to invest your own business.

Investing in Your Business Reduces Risk Because You Gain Control

Investing in your business is all about one thing: control. 

And risk and control are at the opposite ends of a spectrum.  The more control you have, the less risk.  When you lack control, your risk amplifies.

Think about when you were a kid, riding your bicycle through the neighborhood back in the day when helmets were practically uninvented, and there were no rules for how many kids could ride on one bike.  Who had more control, the kid on the seat or the one riding on the handlebars?

When you hand your money over to someone else, you’re like the kid on the handlebars with no control, at the whim and mercy of someone else.  But when you invest actively, choosing investments that you control, you’re driving the bike.

You became an entrepreneur because you wanted to be in control of your life.  Now, if you’re the kind of person who’s taking your financial destiny in your own hands by owning a business, will it serve you to put your money in someone else’s control so they can see you through to the finish line?  Of course not!

The riskiest investments are the ones you make as a passive investor who hands your money over to someone else and hopes they can achieve financial freedom for you.

When you own and operate a business as a cash-flowing investment, you’re exercising the control of being an active investor in the driver’s seat.  Yes, you still have risks, but you have a lot more options when you have control. 

If it’s a rental property, you can evict the tenants, force appreciation with renovations, raise rents, or sell the property.  With your business, you can hire coaches, mentors, the right team, join a mastermind, and strategically innovate to become better.

What Insurance Companies and Banks Say About How Risky Business Is

Think about this: banks and insurance companies, experts at evaluating risk, will reveal a key insight about risk by their business decisions. 

For instance, you cannot get a loan from a bank to invest in mutual funds, because banks think it’s too risky.  You also cannot get insurance on mutual funds because insurance companies see them as too risky. 

However, you can get loans for your business or rental real estate.  And you can insure those assets as well.

What Investing in Your Business is Not

Don’t confuse investing in your business with reinvesting or plowing all your profits back in. 

Investing in your business is a calculated move of using your opportunity fund to leverage an opportunity in your business because you evaluated that it was the investment that had the highest cash flow returns.

The second is a cover-up for a lack of profitability.  If you are using up all your revenue to grow your business, you’re not building a sustainable business.

So how do you remain profitable AND invest in your business?

Remember, as Mike Michalowicz would say, you first want to be profitable, with cold, hard cash that you put into savings to reward you as a shareholder in your business. 

Then, you consider the options for how you can invest your opportunity fund.  When your business rises to the top of the investment list because of its superior ability to put money back in your pocket, over all the other investments you could make, that’s when you invest in your business.

Investing in your business could be implementing systems, formalizing processes, hiring a coach, attending a training, employing a marketing strategist or funding a marketing strategy.  Each time you invest in your business, you need a key objective of turning your money into more, and a systematic pathway to do that.

So, how do you take the right steps to ensure your business is the best place for you to invest?

How to Reduce Risk When Investing in Your Business

Investing isn’t all or nothing.  Your goal should be to create multiple streams of income with a cash-flowing asset portfolio.  Your business may be one of your investments, but it certainly doesn’t need to be the only one.

Additionally, don’t put all your money in.

Richard Wilson, family office authority, says that the ultra-wealthy focus their investing strategy, rather than diversifying.  That’s not only how they create their massive wealth, but how they maintain it and continue growing.

How many people do you know who started with very little money and created a lot of wealth with income property investments or business ownership, as an active investor?  I know several, many of whom have been guests on our podcast.

However, how many people do you know who started with very little money and created a lot of wealth in the stock market as a passive investor?  I can’t name any.

To that point, look at the Forbes 400 list.  To join these ranks, each had to provide tremendous value to A LOT of people.  No one gets on the list by handing over their money to a money manager and hoping it all works out.  However, everyone on this list created their wealth through some form of business.

When you have control and add in knowledge, experience, and unique abilities, you can significantly reduce risk.

Invest in Your Business with Confidence

Investing in your business comes down to your stewardship.  Only invest in your business if you are the entrepreneur who will continue to innovate, grow, and expand your capacity to improve the world.  From that vantage point, it’s risky to undercut your success by believing that your business is risky.

It’s also a bold investing move.  Like Russell Brunson said of one of the greatest wrestling coaches, you only get in the ring if you know you’re going to win.  Similarly, only invest in your something you have full faith and confidence will produce the best return for you.

I hope that you’ve had the opportunity to think differently about whether or not to invest in your business. 

As we talk with business owners, our goal is to empower you to make the financial choices that align with your value system and end goals. 

When you have that clarity and see how your investments move you closer to time and money freedom, you can invest with confidence as an active investor who gains cash flow and control.

Start Building Your Cash Flow System Today

To personally implement Privatized Banking, discover cash flow strategies to keep more of the money you’re making, or locate alternative investments, book a Strategy Call

You’ll find out the one thing that you need to be doing right now to accelerate your path to financial freedom.

Success leaves clues. Model the successful few, not the crowd, and build a life and business you love.

Rachel Marshall

Rachel Marshall

Rachel Marshall is the Co-Founder and Chief Financial Educator of The Money Advantage. She is known for making money simple, fun, and doable.Rachel helps her clients create time and money freedom with cash flow strategies, Privatized Banking, and alternative investments.Rachel is the co-host of The Money Advantage podcast, the popular business and personal finance show. She teaches how to keep more of the money you make, protect it, and turn it into cash-flowing assets.
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