What you should do before making a big financial investment in your company. Make a Plan and Work It.

I started a small monogramming business and soon realized my true passion was creating home décor items embroidered with unique designs. These designs required an embroidery machine capable of stitching multiple thread colors and a very large stitching area. A multi-needle embroidery machine like this would mean making a big financial investment in my business.

I want to share with you the process I went through to determine if this was the right investment for my business. Solo entrepreneurs know a major financial decision, like this one, need to be considered carefully. When you are the sole responsible party for your business, big financial risks can not only make or break your business, they can pose a significant risk to your personal finances too.

Before you sign that financing agreement or write that check:

Examine the risks and rewards of your proposed purchase
Gather the facts about it
Examine your business’ current and future financial picture
Get the support of your team in the office and at home

Follow these simple steps to evaluate if a big financial investment is right for your business. Don’t worry if you find it’s not, this exercise will help you see – if now’s not a good time – what you need to do to get to a time that will be.

1. Make a list of the pros and cons of making the purchase or investment.

Answer the questions below to you get started. You will also do some Market Research to help you develop your list.

Don’t know where to start with Market Research? Read this Small Business Administration Article: Do Your Market Research

What will happen to your business if you make the investment?

This one should be easy to answer because it should be part of the reason why you wanted to make the investment in the first place. For example, I’ll be able to do work that has a greater profit margin. This will allow me to make more money in the same amount of time.

For me, I would be able to expand my offerings beyond small ring bearer pillows to larger-scale throw pillows. Larger pillows equals larger profit margin.

What will happen to your business if you don’t make the investment?

For me, this meant limiting the offerings I could provide within both monogramming and home decor. It also meant that my business was going to be less creatively fulfilling. Don’t discount such intangibles as personal fulfillment; after all you are in business for the personal rewards too.

2. What are the costs?

New vs Used: Buying new can mean great (or expensive!) financing options while buying used can mean lower overall cost. Just make sure you aren’t buying someone else’s problems. Is there a warranty?
Do you need to purchase additional equipment, accessories, training or supplies? Make sure you account for any hidden expenses and fees in the overall cost of investment.

3. Can your business financially support the cost?

Do the math. What are you earning now? What do you need to earn to continue making a profit post-investment?
If the numbers in your math don’t match up, brainstorm a list of ways to bridge the gap. For example: taking advantage of financing, taking a loan from your household, scheduling 2 extra craft fairs.
This is a good time to go back and review the Financial Projection section of your Business Plan. Don’t have one? Get started with the SBA’s Business Plan Creation tool.

4. Are there other options available?

For example, if you are considering adding monogramming to your custom clothing line? Do you have a friend already doing monogramming you can outsource to for a while? This will let you see if your business will support monogramming before you make that investment.

5. Get your stakeholders on board.

Did you decide to move forward? Great! But the hardest part may be here in step 5. So let’s prepare.

Before you bring on the team, remember that pros and cons list? Write a counterpoint to every con on your list – explaining how your business will overcome or compensate for that issue. Put it all into a presentation. It doesn’t have to be formal, but you want show that you have considered every detail and impact of your investment. Having a plan for how you will handle any negatives will soothe the nerves of any nervous stakeholders (read: spouse). Make a date and share your plan.

Making a financial investment in your business is a Big Decision. The SBA shares that many businesses who, despite having a great product, fail due to insufficient financial controls. Make sure that you make a plan and then work that plan so your business can be successful for years to come.

Belinda Briggs owns Belinda Lee Designs, an embroidery and sewing studio in Morrisville, North Carolina. She specializes in embroidered pillows, wall art and quilt squares. She also teaches sewing lessons to aspiring sewists of all ages.