How to Prioritize Investment Within Your Company - Fleximize

How to Prioritize Investment Within Your Company

It can be difficult to know which parts of your SME to invest in first when looking into business growth. Lewis Miller of Nelson Frank shares his expertise on how to prioritize company investments.

By Lewis Miller

Being responsible for growing your business is one of the most rewarding and challenging aspects of running an SME. While you’ll likely be looking at investing in different areas of the company to help drive this success, resources will be finite. That means being able to prioritize your investments is critical.

One thing that will prove valuable when it comes to making these difficult choices is having an agreed-upon strategic growth plan, which will require input from all departments of your organization. If you’ve successfully documented your growth plan, then you’ll know where and how your business will be growing. This will inform the majority of your investment decisions. You can then cross-reference against areas of the business that may be struggling and invest based on this.

Identifying benefits

There are, of course, other considerations to take into account. The first should always be the effect that this investment will have. Consider what the direct benefits of implementing this change will be. This should, generally speaking, be based on a need, rather than a want. A good rule of thumb is that the investment should be on a solution, rather than a specific product. This will help you avoid being suckered into sales pitches for products that aren’t essential to the company.

For example, let's say you’ve identified that your business needs a CRM platform to track the customer journey and offer a smoother transition all the way through the sales funnel and into a completed transaction. Your first thought should be on how you can achieve this, and what potential solutions are available, rather than just finding one specific answer.

If your first thought is about a named product, ahead of ‘we need to improve our customer journey,’ then you may have fallen for the pitch as much as the product. It’s always worth looking at exactly how you’re going to benefit from this implementation, and how the product’s features are going to translate into, and hopefully transform, your business processes. A list of bells and whistles doesn’t truly mean anything unless you apply it to how your business works.

It's therefore very important to follow up great sales pitches by researching alternative products that do exactly the same thing, but either better, faster or cheaper. If you needed to buy a new car, you’d follow much the same process. You’d identify the need for it, do some background research, then start to look at potential options. Follow the same process when looking into investments for your SME.

Look beyond now

One of the most common mistakes made within financial operations is putting cost savings ahead of potential ROI (return on investment). It’s a short-sighted move — often the biggest returns will come as a result of spending appropriately to get the right solution. It’s a common mistake made in business, where people opt to cut down on the solution just to achieve the immediate goal of keeping costs to a minimum. Having a robust ROI methodology is key in this instance.

For example, spending money on equipment, premises or staff that will increase your productivity should result in you having more product to sell (provided your marketing strategy is in good shape). Or maybe the marketing department is where you’re lacking, and you’re sitting on a surplus of stock that you’re struggling to sell. Investing in marketing may then help you create demand for what you’re already in a position to supply. Either way, it's crucial that you always keep the bigger picture in mind when making investment decisions.

Evaluate your decisions

Perhaps most vital at this stage is having a very clear way to benchmark the success of any spending and ensure you’re getting a tangible return on your investments. This will also help you identify any potential cash flow problems, or areas of the business that are losing money, so you can act upon this quickly to counter it.

It’s also important to be constantly monitoring exactly where your expenditure is and any trends that are likely to affect costs going up or down. Your investment plan needs to be clear, but there needs to be room to move on it. Your competitors will give you a good indication of industry trends that may be influencing their decision-making. This can be a good indicator of what’s happening in your sector, and it would be unwise not to be keeping at least one eye on those around you.

Investing in your business is necessary to make it grow, but being able to prioritize these investments in the right way will speed up the process and make sure you’re running the most efficient show possible.

About the Author

Lewis Miller is Chief Financial Officer of niche technology recruitment firm Nelson Frank. He has over two decades’ worth of experience in a mixture of financial and operational leadership roles in Big 4, UK PLC and Private Equity environments.