Is Now the Right Time for Your SME to Invest in Its Assets?

By Thursday, September 1, 2016 0 No tags Permalink

Anyone who imagines that owning your own business is easy has clearly never given it a go. It may seem like a paradisiacal alternative to labouring on someone else’s behalf, but it involves an awful lot of hard work, time, and talent to turn an initial idea into a successful SME.

Even when you’re established, the work doesn’t stop there. Although some will be content to reach a certain turnover and then simply maintain what they’ve built, humanity is made to want more, and most of us desire the most successful and profitable business that we have the ability to create.

This means being willing to put your profits back into your venture, but in order to achieve your end goal, this has to be done at the optimum time. To help you work out when that is, we’ve created this handy guide to help you…

Question #1: Do You Have the Capital?

When it comes to investing in your assets, you need to know that spending on expansion will not leave you short in other areas. Improvements to your business will often be a luxury rather than a necessity, whereas being able to pay your suppliers, employees, monthly rental or mortgage costs, and so on is not a choice.

This means looking at how much capital you have in the bank. If you have a healthy surplus, then the decision is easily made: it’s spare money, and it will be more use to you if you sink it back into your business than it will be if it’s simply left sitting there.

Unfortunately, few business owners have this luxury. In the case of SMEs, in particular, there is rarely a large operating surplus, making the choice a little more complicated.

Question #2: Can You Borrow?

Irrespective of whether or not you have funds available outright, most businesses are able to obtain them if that is their wish, but the vast majority have to turn to borrowing to do so.

Lenders like Secure Trust Bank will often offer specialist packages to help accommodate this need, so that if you require the funds for additional premises, for example, they can provide them on your behalf.

If this is an option for you, then the most important question you must ask yourself is this: can you afford the repayments? A discussion with someone at your chosen lending institution should be able to provide you with an idea of how high these would be, and you can then look at your monthly surplus to see if there is enough left over to cover your costs.

If the first lender you approach cannot offer you suitable terms, don’t instantly assume that borrowing is off the table; shop around to see what’s out there.

Question #3: Should You Borrow?

Even if you can borrow, it doesn’t mean that you should. Although most SMEs will be geared towards expansion, this needn’t be your sole priority, and there are many factors that you must take into account when deciding if it’s right for you.

Firstly, ask yourself how quickly you will reap the rewards. Investing in newer and more efficient machinery, for example, can be very expensive, and if you won’t breakeven with regards to what you’ve spent for the next decade, then more instantly profitable projects may be preferable in the short-term.

Secondly, look at the level of risk involved: will your investment be guaranteed to pay off, or could your plans go awry and leave you out of pocket, and your business in jeopardy? If the answer is the latter, then wait until you have a surplus of cash readily available. The golden rule is never to spend more than you can afford to lose, and if you go against it, understand that the outcome could be disastrous.

Thirdly, look at the economic situation. In the wake of Brexit, we can expect at least a decade of uncertainty, and a prolonged lack of confidence from overseas clients and contacts. This high-risk environment means that it’s best to keep your own risks as low as possible, so that you can weather the inevitable storm when it hits.

When it comes to investing in your assets, there is no more worthwhile place to spend your money, yet it’s important to understand the essentialness of intelligent timing: make your gamble at the wrong moment, and you could be in trouble; place your bets at the right time, and your profits will soar.

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