Business leaders can lead strategically by investing in both themselves and the business.,
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April 7, 2021 5 min read
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“Cash is king” is a simple phrase, but one with numerous applications in the life of a successful business. When a company does not develop the right amount of cash reserves to stay in business or prepare for the future, the CEO must implement changes to ensure its viability and future. Too many companies do not operate with a larger vision or the necessary cash to surpass the next payroll.
In 2020, real wage growth amounted to 1.1 percent, according to The PayScale Index. PayScale found median wages, when adjusted for inflation, actually declined 8.8% since 2006. When these financial indicators are applied to business, it means that business growth and revenue are on the decline and harder to come by in recent years than a decade ago.
With actual dollars more challenging to come by, business owners should deeply consider what percentage their business should have as liquid cash and in investment opportunities to use today’s dollars for future growth. Good business stewardship means that CEOs will consider all avenues to use current sales and profits to ensure the best return on investment. Far too many small businesses never consider taking a portion of their revenue and investing those funds for future profitability.
The leader who stewards their business effectively will focus on both profitability with a purpose and future profits used in a profitable way.
An old proverb states, “The wise store up choice food and olive oil, but fools gulp theirs down.” This proverb’s point is that the wise leader does not dispose of all of their resources immediately but instead will put aside some resources for future growth.
Four facts about business investing
- Business investing is a long-term strategy.
Most business investing is for the future of the business. Note two critical components in this fundamental truth:
1) The return on investment is usually realized after a long period which could include years. Business investing is a long-term strategy, not a get-rich-quick scheme;
2) The return is not guaranteed. Investing with money is not a guarantee to produce results. Spending is always risky. Once the money is spent, unless it is spent on something of value, it no longer has the chance to produce future profits. Investing always carries a risk, but not investing is the riskiest action that a business can take.
- Business Investing should be diversified.
Leaders should understand that the more investments they have, the more likely one of those investments will produce a result. Another proverb states, “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.” This proverb is the foundational principle for mutual funds or other diverse stock portfolios, where managers gather holdings of a number of companies together, knowing that not all those companies will produce gains. The point is clear: the more investments a person or company can pursue, the more likely the investments will produce results.
- Business Investing should happen immediately.
Some business leaders don’t practice business investing because of a faulty idea of timing. The reality is that it never seems like the best time to take current profits or cash and invest it for future resources. However, only when a leader takes current profit or cash and invests it in resources ensures that their company will have a future.
- Business Investing should be continual and not a one-time event.
The leader who hopes to build future profits continues to invest even after they have already invested. In the morning, these leaders plant and then keep planting, knowing that they do not know which seed will produce the 100-fold return. A little investment consistently can build an excellent harvest for a business.
Leading a small business can be very difficult, especially when cash is elusive and profits are thin. Every business and every person will become better stewards of the resources that they have been given when they find more resources that will increase in value. Business investments are critical to the success of any long-term business. Using current profits to enhance future profits is a profitable way to lead a business.
Business owners are not called to lead a business that consistently struggles to keep the doors open and keep the owner poor. Instead, business leaders are called to lead strategically so that they plant the seeds today to reap a harvest tomorrow. Start today by investing in both yourself and the business, so you have more assets under management. The longer you are in business, the more you will be able to say that you have led a business that made a profit with a purpose.