Business Owner Mindset
By Jarrod Musick, Client Wealth Strategist, CFP®
2021 has the potential to be your best ever investment year. I say this with confidence, because as entrepreneurs, each and every year has this potential. With each new year, we have unique opportunities to allocate our capital in ways that create massive impact. Many of these opportunities are inside our businesses, but there are other business valuation areas worth investigating. Let us explore what I view to be the top six investment opportunities in the year to come.
Reinvesting in Your Business
Reinvesting in your business is likely your number one option for both quality of life and return on investment capital. I know that we bang this drum over and over at Entrepreneur Aligned, but at your business, sitting in the seat you want to be in (and only that seat) is an incredible value. Not only are you likely to improve your business financial outcomes in both equity and cash flow, but you are also buying back hours of your life by getting out of the seats that you least enjoy or that do not maximize your contribution. Investing back into your primary business is always an incredible opportunity. This could take the form of adding a technology vendor, an outside contractor, or even a new business segment.
Acquiring a Competitor
Acquiring a competitor may be a top priority in 2021. As the impacts of COVID-19 continue to be absorbed and interest rates remain low, we have a combination of lower business values in many industries and inexpensive financing availability. If your industry is one that has been disrupted over the course of the past year, this may be your moment to acquire a competitor who has had an even more difficult time during COVID-19, and is looking for a partner.
Investing in Other Private Businesses
Investing in other private businesses is also intriguing due to COVID-19. Companies who see opportunities to expand into this societal disruption are looking for new capital to grow and acquire. Examine private companies whom you respect and with whom you would want to participate. Decide if it is the right moment to focus on the importance of business networking and investing with entrepreneurs in your networks who’ve always piqued your interest.
Due to COVID-19 disruption and low interest rates, private real estate is very intriguing for the same reasons as private company investment or competitor acquisition. Are you currently leasing and might be interested in purchasing a building or suite for your business? What about using SBA financing to acquire with 10% down and lease up to 49% of the facility to another business?
We may see further disruption in commercial property values or they may recover - we truly don’t know. What we do know is that interest rates are very favorable currently, and being able to lock in long term debt is a great arrow in your quiver for 2021.
Public market investing is in an interesting place currently. Valuations are unattractive from a historical perspective, but stimualtive efforts from both Congress and the Federal Reserve have pushed a great deal of capital into public market investments. Should this trend continue and COVID-19 vaccines allow increased economic activity, we may have another year of investment gains in broad public markets. We should temper our expectations for returns given historically high valuations relative to earnings, but public markets are always an investment tool with lots of great features such as high liquidity and ease of investment.
Spending to Maximize Family Time
We have the prospects for both a return to normalcy in 2021 or for continued COVID-19 disruption. Because of these two distinct outcomes for the year, I want to highlight both spending money on time with your family and for COVID-19 specific purchases.
What will you spend money on that will bring you closer together with your family next year? For most of us, this includes travel and experiences, many of which we were unable to do in 2020. Will there be ways in 2021 for you to take trips with your family, even if COVID-19 is still an issue? Can you book a private house instead of a hotel? What about flying privately instead of commercially? Can you travel locally to places nearby that you really enjoy? What about purchasing a vacation home or some type of recreational vehicle to travel in while being socially distanced?
Spending money to create time and connection is always a great investment. Be flexible and creative in how you approach that in 2021, but do it!
Important note and disclosure: This article is intended to be informational in nature; it should not be used as the basis for investment decisions. You should seek the advice of an investment professional who understands your particular situation before making any decisions. Investments are subject to risks, including loss of principal. Past returns are not indicative of future results.