Investing is about building wealth. It’s why I include it as part of my exit strategy session. Not all entrepreneurs understand investing, but all entrepreneurs do it. As an entrepreneur, you’re committing something of value, time and money, in hopes of increased value, more leisure time and discretionary money.
As an entrepreneur, you may not have the next million dollar idea. That does not mean you can’t leave your business as a millionaire. Sadly, many people start a business without ever considering how they’re going to get out or how much they’re going to get out with. Right now please stop and think about it. What is your most significant investment and what type of return are you getting?
The fact that you’re an entrepreneur or considering becoming one tells me you’re a risky investor. You’re willing to put it all on one stock. YOU! Any entrepreneur worth his salt knows if you don’t work, you don’t eat. That was until everyone decided they were going to create an online business to generate passive income, but I will leave that til later. Being a risky investor is excellent so long as you calculate the risk. Anything else would be considered gambling.
You're counting on yourself to get up and do what needs to be done. You're counting on yourself to make good use of your time, money and connections.
PICK YOUR SECTOR
If you’re going to invest in you, as I said before, calculate the risk. What sector will have the greatest RIO for you? The financial market sector is made of things like energy, utilities, IT, healthcare, etc. What are you made up of, tech-savvy, artistic, athletic? You may have many gifts and talents but where are you strongest?
I’m not asking you about your passion. I want you to hone in on the thing everyone wants from you for free because they know it's a deal. Think of areas where you're consistently complimented. Think of where you shine and start to invest there. Invest time to learn something new. Invest time to cultivate a relationship.
PICK YOUR VEHICLE
Now that you've decided on your sector let’s pick a vehicle. If the sector is about where to invest in your vehicle is about what. In the stock market, there are stocks, bonds, mutual funds, ETF. Let’s say you chose the artistic sector. Your vehicle could be graphic design, fashion designer, illustrator or makeup artist.
You may decide you want to invest in more than one vehicle and that’s fine. The most significant investment should still be where you get the biggest return. If graphic design in where you get paid then be sure to invest most of your time and effort in that area. If you can make some extra cash as an illustrator, then you spend there as well just not as much.
Now you know what to invest in and where. To increase your wealth by compounding as an entrepreneur, you have to reinvestment. Reinvesting is not to be confused with goodwill or investing in others. Reinvesting is taking SOME, not all of what you earned and put it back into you (your company) so that you now make money on more money.
If you reinvest to buy a piece of equipment that will allow you to produce a higher quality product at a premium price, that may be a wise investment. Hopefully, you did not forget about the calculated risk. You ran the numbers to see what type of return you will get. You determined how many new clients you will need to make the purchase worthwhile. You researched the resell value if there is no ROI.
Because investing is based on compounding and longevity start investing in yourself today. Don’t just throw down cash without counting the cost or investing the time. Also, know your value. In some cases, you may have to drop your price while your stock gathers interest. That doesn’t mean you’re worth less. It means you have to show others how valuable you are.
WHEN TO WALK AWAY
The hardest thing about investing is knowing when to walk away. You may have put in a lot of time and money and nothing is working. Be okay with knowing that you didn't make the right investment. Maybe it was the right investment, just not at the right time. Be sure to give yourself a walking away point and stick with it. You win some. You lose some. Take the wins and learn from the losses.
Phyllis Williams-Strawder is the author of That Damn Girl Stuff: A Mother's Truth and owner of Espresso Mischief Publishing.