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  • 7 Essential Ways to Invest in Your Small Business

    7 Essential Ways to Invest in Your Small Business

    Learn to Invest in Small Business Growth.

    Warren Buffett once said, “The best investment you can make is in yourself.” For small business owners, this wisdom translates directly into the strategic investments you make in your company. Whether it’s in your financial foundation, your team, or the technology that drives your operations, the choices you make today will shape the future of your business. But where should you focus your resources for the maximum return? On this page, we’ll explore ways to invest in your small business that can propel it to new heights to ensure long-term growth and success.

    1. Financial Investment

    Financial investment refers to allocating capital with the expectation of generating a return. This could involve investing in stocks, bonds, real estate, or even reinvesting profits back into your own business. For business owners, it often means using available funds to grow the business, whether through purchasing new equipment, expanding operations, or improving cash flow management.

    What to Consider When Making a Financial Investment

    Before making a financial investment in your business, assessing the likely outcome is essential.

    Risk vs. Return

    Evaluate the risk associated with the investment against the potential returns. High-risk investments may offer higher returns but also come with the possibility of losing capital.

    Liquidity

    Consider how easily the investment can be converted into cash. Liquidity is crucial for maintaining operational flexibility, especially in uncertain times.

    Time Horizon

    The time frame over which the investment will mature or generate returns is crucial. Short-term investments may provide quick returns, while long-term investments could lead to substantial growth over time.

    Opportunity Cost

    Every dollar invested in one area is a dollar not available for another. Consider what other opportunities you might be forgoing by making this investment.

    Cash Flow Impact

    It’s essential to ensure that an investment won’t strain cash flow. This is where a solution like invoice factoring comes into play, as it provides immediate funds through the sale of your receivables, which can then be reinvested into growth areas. For industries such as security services, leveraging invoice factoring for security firms can help bridge cash flow gaps, ensuring operational stability while enabling reinvestment into critical business areas.

    2. Human Capital Investment

    Human capital investment refers to the resources a business allocates toward improving its employees’ skills, knowledge, and productivity. This includes hiring the right talent, providing ongoing training and professional development opportunities, and fostering a positive work environment. Investing in human capital is essential because employees are often a business’s most valuable asset, as capable, motivated staff drive innovation, efficiency, and, ultimately, profitability.

    How Much to Invest in Human Capital

    There’s a significant divide in how much companies spend on these investments. For instance, a services provider or IT company may spend anywhere from 30 to 50 percent of its overall budget on HR expenses, the Economic Times reports. Meanwhile, a manufacturing company might spend six percent or less. Because of this, it’s often easier to create a ballpark figure for annual spend by developing a budget based on the number of employees. On average, businesses spend an average of $2,810 per employee each year, according to Gartner research.

    What to Consider When Making a Human Capital Investment

    Investing in your workforce goes beyond just filling positions. Consider a range of factors that will help cultivate a motivated, skilled, and loyal team. Some aspects to remember as you plan your human capital investments are covered below.

    Recruitment Strategy

    Attract and hire individuals whose skills and values align with the company’s goals. Consider what specific competencies are needed to support business growth and how to source candidates who embody those traits.

    Training and Development

    Continuous learning is critical. Offering training programs helps employees stay current with industry trends and improves their ability to contribute meaningfully to the business. This includes technical skills, leadership development, and soft skills like communication and teamwork.

    Employee Retention

    High turnover can be costly. Investing in retention strategies, such as competitive salaries, benefits, work-life balance, and a positive company culture, ensures that your investment in people pays off in the long term.

    Performance Management

    Regular feedback and performance reviews help employees grow in their roles. A clear system for evaluating and rewarding performance can motivate employees and align their efforts with the company’s objectives.

    Health and Well-Being

    Supporting employees’ physical and mental health through wellness programs, flexible working arrangements, and supportive management practices can enhance productivity and reduce absenteeism.

    3. Technological Investment

    Technological investment refers to allocating resources toward acquiring, implementing, and maintaining technology that enhances business operations. This can range from upgrading IT infrastructure and adopting new software to investing in automation, cybersecurity, and data analytics tools. In today’s fast-paced business environment, staying technologically competitive is crucial for efficiency, scalability, and innovation.

    How Much to Invest in Technology

    Businesses spend an average of 3.28 percent of their revenue on IT, according to Deloitte. This varies greatly, with some industries like banking and securities coming in at over seven percent, while others like manufacturing at less than two percent.

    What to Consider When Making a Technological Investment

    Technology is a critical driver of growth and efficiency in any business. However, investing in technology requires careful consideration to ensure your chosen solutions align with your business needs and objectives. Let’s take a quick look at some factors to evaluate before making a technological investment.

    Business Needs and Goals

    Identify what specific challenges or opportunities the technology will address. Will it streamline operations, improve customer experience, or enhance data security? Ensure the technology aligns with your long-term business goals.

    Scalability

    Consider whether the technology can grow with your business. Investing in scalable solutions means you won’t need to reinvest in new systems as your business expands.

    Integration with Existing Systems

    Evaluate how the new technology will integrate with your current systems. Seamless integration is critical to avoiding disruptions and maximizing the investment’s benefits.

    User Training and Adoption

    Technology is only as good as the people using it. Plan for training and support to ensure your team can use the new tools effectively. Resistance to change can undermine the ROI of even the most advanced systems.

    Cost vs. Benefit

    Analyze the total cost of ownership, including initial purchase, implementation, and ongoing maintenance. Compare this with the expected benefits, such as time savings, increased productivity, or improved security, to determine if the investment is worthwhile.

    4. Marketing and Advertising Investment

    Marketing and advertising investment refers to allocating resources, such as time, money, and effort, toward promoting your business, products, or services to reach and engage your target audience. This includes everything from digital marketing campaigns and social media advertising to traditional channels like print ads, TV commercials, and event sponsorships. Effective marketing drives brand awareness, generates leads, and ultimately increases sales.

    How Much to Invest in Marketing and Advertising

    Businesses spend an average of 13.6 percent of their total budgets on marketing, according to HubSpot. As with other categories, there is a significant divide by industry. Consumer packaged goods, for example, comes out on top at over 25 percent, while others, like transportation, spend an average of less than two percent of their total budgets on marketing.

    What to Consider When Making a Marketing and Advertising Investment

    Investing in marketing and advertising is crucial for business growth, but it requires careful planning to ensure your efforts are effective and efficient. Below, we’ll cover a few factors to consider when deciding where and how to allocate your marketing budget.

    Target Audience

    Understanding your target audience is foundational. Knowing who your customers are, what they need, and where they spend their time will help you tailor your marketing efforts to reach them effectively.

    Marketing Channels

    Choose the right marketing channel mix that aligns with your audience’s preferences and business goals. This could include digital channels like social media, search engine marketing (SEM), and email marketing, or traditional channels like print, radio, or TV.

    Budget Allocation

    Determine how much you can invest in marketing and where to allocate your budget for the best return. When making these decisions, consider factors like customer acquisition cost (CAC) and a customer’s lifetime value (LTV).

    Content and Messaging

    Craft compelling content and clear messaging that resonates with your audience and differentiates your brand from competitors. Consistent, high-quality content across all marketing channels helps build trust and credibility.

    Measurement and Analytics

    Implement systems to track the performance of your marketing efforts. Metrics like conversion rates, click-through rates (CTR), and return on ad spend (ROAS) will provide insights into what’s working and what needs adjustment.

    5. Product or Service Development

    Product or service development refers to creating new products or services or improving existing ones to meet customer needs and market demands. This investment is crucial for staying competitive, expanding your market share, and driving growth. Whether it’s introducing a new product line, enhancing a current service, or innovating to solve a specific problem, development efforts help a business adapt to changing market conditions and customer expectations.

    How Much to Invest in Product and Service Development

    Businesses reinvest just under four percent of their revenue into R&D, according to NYU research. Naturally, industries such as pharmaceuticals, semiconductors, and software come in on the higher end, approaching or surpassing 20 percent, while others, such as transportation, come in at little more than one percent.

    What to Consider When Making a Product or Service Development Investment

    Investing in product or service development is a strategic move that can significantly impact your business’s growth and competitive edge. However, ensuring that your development efforts align with market demands and business goals requires careful consideration. Here are some key factors to keep in mind.

    Market Research

    Before investing in development, conduct thorough market research to understand customer needs, preferences, and pain points. Identify gaps in the market that your new or improved product or service can fill.

    Customer Feedback

    Leverage feedback from your existing customers to guide your development efforts. Understanding what your customers like and dislike about your current offerings can provide valuable insights into how to improve or expand them.

    Innovation and Differentiation

    Consider how your product or service will stand out from competitors. Innovation doesn’t always mean inventing something entirely new. It can also involve making significant improvements to existing offerings or delivering them in a unique way.

    Cost and Feasibility

    Assess the costs associated with development, including research, design, prototyping, testing, and marketing. Evaluate whether the potential returns justify the investment and whether your business has the resources to execute the development plan effectively.

    Time to Market

    Consider the timeline for bringing your product or service to market. Speed can be critical in fast-moving industries. Delays can result in missed opportunities or the risk of being outpaced by competitors.

    6. Infrastructure Investment

    Infrastructure investment refers to allocating resources toward building, maintaining, or upgrading the physical and organizational structures needed for a business to operate efficiently. This can include investing in facilities, machinery, technology systems, and even organizational processes. Infrastructure is the backbone of your business, enabling smooth operations, scalability, and the ability to effectively meet customer demand.

    What to Consider When Making an Infrastructure Investment

    Investing in your business infrastructure ensures long-term success and operational efficiency. However, these investments require careful planning and consideration to ensure they align with your overall business strategy. Here’s what to consider before committing resources to infrastructure.

    Business Needs and Growth Plans

    Assess your current and future business needs. Will the infrastructure support your growth plans? Consider whether your current facilities, equipment, and systems can handle increased production, more employees, or expanded services.

    Cost-Benefit Analysis

    Conduct a thorough cost-benefit analysis to evaluate whether the potential benefits of the investment outweigh the costs. This includes the initial expenditure, ongoing maintenance, and possible disruptions during the upgrade or build-out.

    Scalability

    Consider whether the infrastructure can scale as your business grows. Investing in scalable solutions now can save time and money in the future by reducing the need for frequent upgrades or replacements.

    Regulatory and Compliance Requirements

    Ensure that any infrastructure investments comply with industry regulations and standards. This is especially important in sectors with strict regulatory requirements, such as healthcare, finance, or manufacturing.

    Environmental and Sustainability Considerations

    Businesses are increasingly expected to consider their operations’ environmental impact. Investing in sustainable infrastructure—such as energy-efficient buildings, renewable energy sources, or waste reduction systems—can reduce your environmental footprint and appeal to environmentally conscious customers.

    7. Strategic Partnerships

    Strategic partnership investment involves forming alliances with other businesses or organizations to achieve mutual benefits. They’re often seen as one of the advantages of networking in business because they often happen organically, just by being in the right place at the right time. These partnerships can take many forms, such as joint ventures, collaborations, or long-term contracts, and can involve anything from sharing resources and expertise to co-developing products or services. The goal of strategic partnerships is to leverage each partner’s strengths to create value that would be difficult to achieve independently.

    What to Consider When Making a Strategic Partnerships Investment

    Strategic partnerships can be a powerful way to expand your business’s capabilities, reach new markets, and enhance your competitive edge. However, forming these partnerships requires careful consideration to ensure they align with your business objectives and deliver mutual value. Let’s take a look at what to consider when entering into a strategic partnership.

    Alignment of Goals and Values

    Ensure the potential partner’s goals, values, and vision align with yours. A strong alignment helps foster a collaborative relationship and ensures that both parties are working toward the same objectives.

    Complementary Strengths

    Look for partners whose strengths complement your own. For example, a company with strong distribution networks might partner with a business with innovative products but limited market reach. This synergy can lead to greater success for both parties.

    Clear Terms and Expectations

    Establish clear terms, roles, and expectations for the partnership. This includes defining responsibilities, contributions, profit-sharing arrangements, and how conflicts will be resolved. A well-drafted agreement helps prevent misunderstandings and ensures a smooth collaboration.

    Long-Term Viability

    Consider the long-term viability of the partnership. Will the relationship continue to provide value as your business grows and the market evolves? Ensure that the partnership is flexible enough to adapt to changes over time.

    Risk Management

    Assess the risks involved in the partnership and develop strategies to mitigate them. This could include legal risks, financial risks, or the risk of dependency on the partner. A thorough risk assessment will help you prepare for potential challenges.

    Be Ready for Your Next Investment: Kick Off a Strategic Partnership with Charter Capital

    With decades of experience and specialized expertise in industries like trucking, oil and gas services, staffing, and manufacturing, Charter Capital understands the challenges growing businesses face. Because of this, we provide tailored funding solutions that can help you bridge cash flow gaps or make crucial investments in your business to ensure long-term success. To ensure you’re ready when an opportunity to grow your business emerges, request a complimentary factoring quote now.

  • Roth IRA vs Traditional IRA: Which IRA is Best and Why

    Roth IRA vs Traditional IRA: Which IRA is Best and Why

    Roth IRA vs Traditional IRA

    Do you want to know the difference between a Roth and traditional IRA? No matter what stage of life you’re in, it’s important to be building a nest egg for retirement.

    A general rule of thumb, according to Fidelity, is to have at least:

    • 1x your annual salary saved by age 30
    • 3x by 40
    • 6x by 50
    • 8x by 60
    • 10x by 67

    Putting money into an IRA can help you get there, but which option is best? You’ll get a brief overview of IRA types on this page, plus an in-depth comparison of two of the most popular: Roth vs traditional IRA.

    What’s an IRA?

    An IRA, short for individual retirement account, is an account set up through a financial institution that allows you to save for retirement on a tax-deferred basis or with tax-free growth. IRAs are one of the most powerful ways to save, plus can often work together or alongside a 401(k) to help you meet your goals.

    Quick IRA Comparison of IRAs

    There are seven types of IRAs.

    1. Traditional IRA: Usually the best IRA for those who think they’re in a higher tax bracket now than they will be during retirement as well as those who cannot contribute to an employer-sponsored retirement program.
    2. Roth IRA: Usually best for those who think they’ll be in a higher tax bracket during retirement than they are now and those who might need to draw funds before retirement.
    3. SEP IRA: Short for Simplified employee pension; usually best for small business owners who want a retirement plan without paying extra startup and operating costs.
    4. Nondeductible IRA: Usually best for those who would otherwise go for a Roth or deductible IRA but don’t qualify.
    5. Spousal IRA: Works for a low-income or nonworking person who is married to someone with earned income.
    6. SIMPLE IRA: Short for savings incentive match plan for employees; Usually best for small businesses that have less than 100 employees.
    7. Self-Directed IRA: Usually best for seasoned investors, as self-directed IRAs carry additional risks in exchange for potentially higher returns.

    Despite there being seven types of IRAs, most people will opt for either a Roth IRA or traditional IRA, so we’ll focus on those for the rest of this page.

    Key Differences: A Traditional IRA vs a Roth IRA

    To get started, let’s look at a high-level overview of the differences between a Roth IRA vs traditional IRA.

    Eligibility

    • Eligibility Requirements for a Traditional IRA: Anyone may contribute to a traditional IRA if they’ve earned U.S. income that year.
    • Eligibility Requirements for a Roth IRA: There are income limits for Roth IRA contributors. For example, contributions are phased out for those with an income between $129,000 and $144,000 who are filing as single or head of household in 2022. It’s phased out at $204,000 to $214,000 for those filing as married filing jointly or qualifying widow(er).

    Taxes

    • Tax Rules for a Traditional IRA: You may be able to deduct all or a portion of your contributions.
    • Tax Rules for a Roth IRA: Contributions are never deductible. 

    Contributions

    • Contribution Rules and Limits for a Traditional IRA: The maximum contribution changes annually. For example, those under age 50 have a maximum annual contribution of $6,000, while those over 50 can contribute up to $7,000.
    • Contribution Rules and Limits for a Roth IRA: The rules are the same. The maximum contribution changes annually. For example, those under age 50 have a maximum annual contribution of $6,000, while those over 50 can contribute up to $7,000.

    Withdrawals and Mandatory Distributions

    • Withdrawal Rules for a Traditional IRA: You must begin taking a required minimum distribution at age 72. Earnings withdrawals are taxable, and there are generally penalties for withdrawing before age 59.5. You can withdraw contributions anytime, but deductible contributions are taxable, and you’ll usually pay a penalty if you’re not at least 59.5.
    • Withdrawal Rules for a Roth IRA: You’re not required to take a minimum distribution at any age. Certain withdrawals of earnings may be tax-free and penalty-free after the age of 59.5 if you’ve become disabled before that age and for other circumstances. Withdrawals of contributions are not subject to taxes or penalties.

    Pros and Cons of a Traditional IRA

    Now that we’ve looked at the two most common IRA types side-by-side, let’s do a deep dive into the pros and cons of a traditional IRA.

    Benefits of a Traditional IRA

    • Anyone with earned income can contribute. Unlike other forms of investment that have caps on income, anyone who has earned income in the U.S. can contribute to a traditional IRA that year.
    • Your savings grow tax-free. You aren’t taxed on profits as your investments grow.
    • Your contributions are deductible. Because your withdrawals are taxed, anything you add to a traditional IRA isn’t taxed now, so you can deduct it from your income and pay lower taxes now too.

    Drawbacks of a Traditional IRA

    • Withdrawals are taxable. Since the money you invest should grow, you’ll be taxed more than you would have if you had been taxed before you invested. In retirement, there are tax benefits if you are in a lower tax bracket than you are now, however, it can reduce your savings otherwise.
    • A withdrawal penalty applies if you withdraw early and don’t qualify for a withdrawal exception. You’ll pay an extra 10 percent tax penalty if you withdraw before age 59.5.
    • Contribution limits are low. Depending on your situation, you might be able to contribute two or three times more with other investment options.

    Pros and Cons of a Roth IRA

    There are benefits and drawbacks to choosing a Roth IRA too.

    Benefits of a Roth IRA

    • Your savings grow tax-free. The money isn’t taxed as income until distributed when you retire.
    • You can withdraw your contributions at any time. If you’ve added $10,000 to your account, you can withdraw it at any point without penalties.
    • There are no required minimum distributions. Other investment options force you to start withdrawing at a certain age.
    • Qualified distributions are tax-free. If your account has been open for at least five years and you’re 59.5 or older, there are no taxes or penalties for distribution. If your distributions are not qualified, they’re subject to a 10 percent penalty and may be taxable.

    Drawbacks of a Roth IRA 

    • Those with higher incomes won’t qualify. The cap shifts from year to year, but if you earn more than the average person, you may not be able to contribute to a Roth IRA.
    • Contribution limits are low. Roth and traditional IRAs have the same contribution limits, so there’s no disadvantage to going with a Roth IRA vs traditional IRA in this respect. However, you may want to work with other investment options if you need to put more money away.
    • Contributions are taxable. Rather than taxing you at distribution, Roth IRA contributions are made after the money has already been taxed. That’s not a bad thing if you’re in a lower tax bracket now than you will be in retirement, but it can eat away at your savings if you’re in a higher tax bracket now.
    • Rollovers from your traditional plan are taxable. The entire amount is taxable if you transfer rollover money from your traditional IRA to your Roth.

    Should You Choose a Traditional IRA or Roth IRA?

    If you’re in a higher tax bracket now than you will be in when you retire, a traditional IRA is generally best.

    If you’ll be in a higher tax bracket or think you may need to withdraw contributions before retirement, a Roth IRA is probably the better choice.

    With that said, investing for retirement is very personal, and it’s always best to speak with a tax specialist or financial planner to establish which is best for you and how much to contribute to each.

    Can You Contribute to Both a Roth IRA and a Traditional IRA?

    Yes, you can have both a Roth IRA and a traditional IRA and even contribute to both in the same year if you meet the qualifications. However, they will share the same contribution cap, so having both doesn’t mean you can double your investment. If your goal is to set aside more than the IRA contribution limit allows, you can use other investment vehicles. Employer-sponsored plans such as a 401(k) are one example.

    Build a Stronger Business with Invoice Factoring

    If you’re a business owner, your biggest and best retirement investment is, no doubt, your company. However, businesses experiencing rapid growth often find themselves short on working capital, and any company may be impacted by seasonal lulls or slow-paying clients. Invoice factoring can help your business thrive during these times and come out stronger by providing you with instant payment on your B2B invoices. To learn more or get started, request a complimentary rate quote from Charter Capital.

    Disclaimer: This article has not been produced by or vetted by a certified legal or accounting advisor. The information provided in this article may be stale, dated, inaccurate, or not appropriate for reader’s investment purposes. Content of this article should not be relied upon for making any investment decisions. You should seek appropriate counsel for your own situation.

  • What’s in Store for Small Business in 2018?

    What’s in Store for Small Business in 2018?

    Store for Small Business

    What’s in Store for Small Business in 2018?

    The just finished 2017 was a banner year for investors and publically traded companies. The Dow Jones Average opened 2017 at 19,762 and closed 12 months later at a near record of 24,719 (up a hefty 25 percent). That’s nearly double the average of five years ago, when the Dow closed 2012 at 13,104. The rally shows no signs of stopping, as the average rose even higher to 25,295 in the first week of 2018.

    So clearly, investors enjoyed the past year and are looking for more strong gains in the months ahead. But what about small businesses?What are their prospects for the New Year?

    The overwhelming majority of small businesses are not publically traded companies. A rising stock market may have little to no effect on them. Do they have reason for optimism as we enter 2018?

    According to the Metlife/U.S. Chamber of Commerce’s Small Business Index, the answer is yes. During the most recent survey, a healthy 63.2 percent of small business owners queried say they were confident in their local economies, the overall small business climate in the United States and in the health of their companies.

    The South leads in small business confidence, while the Northeast comes in last of the four regions. However, the difference between the highest and lowest confidence scores is only 2.6 percent. However, confidence and optimism are not necessarily the same thing. While 63.2 percent were confident about their companies, only 38 percent were optimistic about the future.

    That lower optimism rate could be a simple by-product of operating a small business, where the odds of long-lasting success can sometimes seem daunting. Another factor that could affect optimism is something that is actually good: increased competition. One-in-five small businesses owners expect to see increased competition in the coming months. That could indicate a growing economy, with more entrepreneurs willing to risk capital to start new companies. Indeed, nearly half of those surveyed say they believe their local economies are strong. That number has increased six percent since the second quarter survey of 2017.

    Other survey highlights include 57 percent responding that they expect their revenues will rise in 2018. A quarter of small business owners plan to increase their investments in the coming year, a number that may rise following the recent tax bill enacted by Congress. Finally, 27 percent anticipate hiring more workers, up three percent over the last quarterly survey.

    A Bank of America poll of small business owners found that optimism runs highest among the youngest operators. Millennial entrepreneurs expressed the greatest belief their revenues would rise in 2018 (81 percent), while Baby Boomer owners seemed rather dour in comparison (40 percent). Gen X came in between with 60 percent confident in rising revenues.

    In another survey, conducted by Microsoft, 37.6 percent of small business owner respondents answered they planned to introduce new products and services in 2018, indicating optimism about the future. A similar number (35.7 percent) revealed they intend to adopt a new marketing strategy within the next 12 months. Nearly 20 percent said they were considering partnering with other small businesses to expand their markets.

    While most small businesses then seem quite confident and fairly optimistic regarding the new year, there still are several areas of concern. Quite a few probably sound all too familiar.

    First, of course, are taxes. However, this concern may lessen as a result of the recently passed tax legislation. Obviously, it’s far too early to tell the impact that these new tax rates will have on small businesses. Some time will have to pass before it can be determined if the effects were positive or negative.

    A second small business concern is technology. Cybersecurity looms large here as companies conduct more business over the internet. Surprisingly, however, a significant portion of small businesses have little or no internet presence – be it the ability to fulfill orders online or market via social media – possibly due to cybersecurity concerns.

    Finally, effective cash-flow management is a growing concern for small businesses.  A weak cash-flow management system puts a company at constant risk. As a result, services such as invoice factoring have developed to help companies get a better grip on incoming payments.

    On the whole, 2018 looks to hold promise for small business owners. What does the future truly hold? Only time will tell.