When is the Right Time For a Business to Invest?
Businesses, by their very nature, will require investment at various stages of their existence. What is difficult is how to understand when investment is necessary and what the opportunity costs of doing so are. A business could, say, invest in new machinery, but that would also mean that the business owner may not be able to hire new staff. Often, the question is not what to invest in, but when to invest.
When a business is in its planning stage, the owner has to make decisions on what they need to invest in to begin with. Some will choose (or have no choice except) to start off with the bare minimum and use money generated from this to reinvest in the business. Others that have the resources may choose to invest in equipment and a workforce that will allow them to hit the ground running, which can cover them for a set period of time. The route taken depends very much on the owner, but what is certain is that investment is essential at the beginning of any business’ lifecycle.
As a business grows, owners will see opportunities and room for expansion. This will often call for capital investment in buildings, machinery, furniture, computing, etc. Once a business sees such opportunities, you would often expect the owner to invest to take advantage of this. For example, if a food stall is doing well with consistent business to the point where they can no longer handle the influx of customers, they would certainly explore the opportunity to expand, possibly into a permanent, bricks-and-mortar location.
The opportunity costs within doing business always need to be considered, and this often dictates what route an organisation will go down. For example, it rarely makes sense for companies to be cash-rich, especially when their money could be used to make more money. Why would a business have money in their bank account with a low interest rate when it could be used for capital expenditure, for example, with the goal of generating more money? Well, they might consider the external environment at the time to not be conducive for investment. During the Covid-19 pandemic, there are no doubt many businesses that wish they hadn’t invested this year and instead kept their cash. Then again, hindsight is 20-20.
Businesses will assess and determine their priorities at that moment in time before investing. New companies will often want to grow quickly while larger companies may want to improve efficiency. This can be seen in their investment styles and choices. Small businesses may invest in more stock or new infrastructure, while a larger business may invest in a room scheduler from Pronestor to make better use of their current buildings.
In a nutshell, every business is different and there are many things for them to consider before investing. There is no one-size-fits-all strategy, so decisions need to be made after a thorough analysis of the business itself and their environment.
