How to Invest as a Small Business Owner

Disclaimer: This is what I do; don’t copy this exactly. Do your research and do what works best for you.

I know it’s not exactly the right definition of the barbell approach, but I think of my strategy as a barbell.

1. Make money in my business (the bar).

2. Invest in equities or real estate (the weights on the end).

Here are all the steps (in order) that you should follow when thinking through your investment strategy.

FYI – I’m making the steps so you can jump in wherever you’re currently in your process.

Step 1: Get a written budget

It’s time to break out the spreadsheets or download a budget app!

The first step in investment is knowing what you’re spending and where you can save.

Here’s how to budget if you’ve never done it. 

Step 2: Save $1,000

This is your initial safety net, a buffer for unexpected events.

Whether it’s a minor car repair or a sudden medical expense, having this cash cushion allows you to handle bumps in the road without derailing your financial goals.

Step 3: Pay off all debt except your mortgage using the debt avalanche

This method focuses on paying off loans with the highest interest rates first.

This can save you a significant amount in the long run. Once you’ve cleared this debt, you’ll have more funds available for investment.

Step 4: Save 3-6 months of expenses

This is the ideal emergency fund.

It gives you the peace of mind of knowing you could handle a significant financial blow without going back into debt.

Step 5: Work up to investing 10% of your gross revenue into business growth

You’re never going to make a better return than the investment made in your business. Typically, the 10% is in the form of marketing or sales.

Now, you’re on easy street.

You’ve got no debt, a beautiful emergency fund, and a thriving growing business.

It’s time to turn on the afterburners.

Disclaimer (again), this is what I do, and I’ll tell you why.

Step 6: Max out a Roth IRA

A Roth IRA is a type of individual retirement account that allows your investments to grow tax-free.

You contribute with after-tax dollars, meaning you’ve already paid taxes on the money you put into it.

In return for no up-front tax break, your money grows tax-free, and when you withdraw at retirement, you pay no taxes.

Step 7: Save $10,000 in a 529 plan

529 plans are savings vehicles tailor-made for future college costs.

They can be used to meet costs of qualified colleges nationwide.

In most plans, your money will grow tax-free and can be withdrawn tax-free to pay for college costs.

Step 8: Invest all additional cash into ETFs & REITS through a brokerage

ETF: Just like a mutual fund, it pools the resources of many investors to track specific assets like indices, sectors, or commodities.

But, here’s the catch – unlike mutual funds, you can buy and sell ETFs on a stock exchange just like any regular stock. Cool, right?

REIT: Short for Real Estate Investment Trust, a REIT is a corporation that owns, manages, or provides funding for income-producing real estate.

Taking a cue from mutual funds, REITs gather money from a multitude of investors.

This approach opens up opportunities for individual investors to receive income from real estate assets, bypassing the need to directly purchase, oversee, or secure financing for properties.

Step 9: Buy physical real estate

Buying physical real estate involves purchasing residential or commercial properties to generate income either through rental or resale.

This is a long-term investment strategy that can be highly profitable over time.

However, it requires a significant upfront financial commitment.

Before taking this step, it’s crucial to thoroughly research and consider factors such as location, market trends, and property condition.