How to Save and Invest as a Small Business Owner

by | Jul 5, 2021 | Investing

How to Save and Invest as a Small Business Owner

Do you feel like your business is going to take off any day now? Perhaps you are a new entrepreneur, just starting out and looking for the right way to save and invest. So how much money do you think you need? How about $1,000? More than that? What if you are told that there are ways for saving and investing as a small business owner without having a lot of money or time. 

Yes, it is not always easy when you have so many other priorities on your plate, but entrepreneurs must make time for their financial future. This post will explore the importance of saving and investing money as an entrepreneur to reach your goals. We will also discuss other strategies for creating wealth efficiently. Hopefully after reading you will be able to get started on the path towards investing in yourself!


Saving vs Investing: Which is Better? 

It is not uncommon for business owners to think that saving and investing are the same thing. If you take a step back, it seems like they are pretty similar. But there is no denying their difference if you look at them closely enough. 

The key difference between these two areas of finance boils down to one question: Do I want to enjoy my money now, or do I want to create more for later goals? The best answer is that every person has their own preference on this topic, however no one should deny the importance of saving for the financial future of yourselves and the ones you love. 


So, let us define the two terms to make things clearer.

Savings is the process of storing away money to use for a future purchase. It is your monthly income minus expenses. Typically these are funds that you keep in cash holdings for something in the next 12 months, and not typically associated with your checking account.

Investment is the act of committing a certain sum of money or capital to an endeavor with the idea that such resources will be used in a profitable venture. For the most part, when people refer to investments they are referring to the stock, bond, real estate, and other markets around the world. The goal of any investment is to have the value of what you own grow, so that in the future you can sell the asset to fund other goals. It is important to note, objects with utility – such as cars and houses should not be generally be considered an investment.


Here are a few examples to help learn the difference.

Helen invests $1.5 million in a diversified portfolio with her advisor. Their plan is to invest for over 10 years, but in any one year it could return a high rate of return or have lost a large amount of value. The goal is in the long term she outperforms a cash savings account. In the first year she earns only 1%. After one year, Helen’s investment is worth the original $1.5 Million, plus an additional $15,000 of money as the return on her investment. This key here is that she is choosing to give up access to these funds for a longer time frame in order to hopefully earn a higher rate of return.

Albert, however, deposits $1.5 million in a money market(savings) account at Wealthy Bank. He receives .33% per year for his cash deposits being held by the bank and keeping his account there.  He will only earn $5,000 for the first 12 months, and of course, if he takes out any money, he would earn less interest since there is less invested. However, the key here is that he has access to his money the entire time so he would be able to use it for other personal finance needs and business goals without the risk of losing money.


Now, what do you think is better – savings or investment? Well, of course, the answer is it depends on where your business and personal life is. This is why having the right team helping guide you financially is key, so be sure to work with a CFO, Financial Planner, and/or an accountant.

Further, there is no denying that saving money for a rainy day is essential and should always be on your mind. However, the question of whether you should invest or save more arises because there are pros to both. Investing can generate higher returns than savings accounts, but it does come with greater risk. This means that when investing, you are taking chances in hopes of making gains either through capital appreciation or dividends from stocks annually. 

On the other hand, if all goes well, then an investment account will grow exponentially over time instead of being stagnant like a savings account (which only generates at a fixed rate). Understanding how these investments work and what type suits your needs best is essential before deciding which route to take.

One of the options you may explore is an emergency fund. What is it, and how to build it? Let us find out.


Building an Emergency Fund

The answer to your question, “How do I invest in my business?” is always an emergency fund to start. It is an excellent tool for a small business to have on hand in order to fund projects and weather the waves of business. These funds can help bridge the gap between a business temporarily ceasing operations and going out of business altogether, so it is key to have this prepared to protect yourself and any team members. Additionally, setting one up helps free up money that would have been used elsewhere. So now you can reinvest into what matters most—your business.

Apart from the above, the benefits of investing in your own business with an emergency fund should be a priority for the reasons listed below: 



An emergency fund provides you with that extra bit of security. You will have fewer sleepless nights if there is a fund available for your family in case anything goes wrong. So be sure to open an account today.


Having cash set aside may allow you to take over other companies, lend money, buy new equipment, and expand more aggressively. Always be sure to manage your cash flow out for the next 12 months or so in order to be properly prepared, and that you use a CFO if you are not an expert here. A great plan to save and invest will help you grow wealth faster by maximizing opportunities. 

Savings stay intact

If you are a small business owner, it is important to know that your personal funds are likely to deplete in times of emergency. An emergency fund is a backup plan in such situations, and allows your personal financial life to continue without financial interruption. Another


How Your Personal Finances Play a Role

Like how a solid business plan is vital for running a business, planning your personal finances is just as important. The real key is to know how much your business needs, your personal life needs, and how much to set aside for retirement and taxes. Once you do this you can piece everything together in order to start optimizing the way in which you save and invest for both your business and yourself. 

Though it is difficult for a small business owner as there is not much difference between business and personal goals, seek help from a fiduciary financial planner who can help you define your personal financial goals in order to determine how to optimize the financial assets, including the business. This way your financial focus becomes about when to retire, funding children’s education, and decide about other expenses such as vacation, or charity.

What makes saving and investing even more important is that without appropriate savings you will undoubtedly keep extracting money from business finances in the absence of a personal savings fund. Every time you think you are making progress something will come up because there is not a cohesive plan, and you will feel a setback. To prevent this, we need to be proactive in financial planning for personal and business life and remember that keeping the two operating separately is the key to staying financially safe and running a business without financial hiccups. 


Understanding How Much You Can Invest

Suppose, in the last 12 months of business your company makes a significant amount of profits. You think it is the right time to make a few investments, but are unsure if it will be a good move. It is good you consider this because knowing your profit is only the starting line to knowing how to answer: “how much can I invest?” In fact, profits aren’t the real driver of this decision, rather cash flow is the real checkbook of your company. You may ask, “what is cash flow?”

Cash flow is simply the inflow and outflow of finances of your business or freelancing gig. It is a crucial indicator of a the business’ financial condition, however, cash flow can be negative or positive, and it isn’t always obvious what the stat means. If the cash flow balance is positive, it implies that the period’s income was significantly higher than the expenses. But if it is negative, it means that the expenditures were more than the income. However, keep in mind that you can run in the negative, and still invest. If you know your cash flow and specifically why it is reflecting what it does, you will be able to see if you have room to aggressively pay down debt, save, and invest.


Profit First Investing Strategy

The profit first method is a new take on cash flow. This new business strategy is a simple way to get more out of every sale. First introduced in ‘Profit First’, a book by Mike Michalowicz’, the method has won critical acclaim among small business owners, accountants, and other financially independent communities. 

The Profit First method takes only a percentage as profit upfront and leaves everything else in your company budget for other expenditures such as salaries, rent, utilities, and material costs. It’s the opposite approach from traditional accounting, which subtracts expenses before profits are calculated. 

Running a business like this is not an easy feat. However, when you put profit first, you prioritize your own well-being over the pursuit of profit. It makes you more conscious about how and where your money is spent, thus encouraging a shift in mentality. The change can be empowering to those who are used to putting themselves last on their list of priorities.

As always, the key to success in finance is making sure you have options and are working with a professional team to know the best strategy to invest in your business.


How does Profit First Investment Strategy work?

Profit First is a system that revolutionizes the way you spend your money, and it all starts with taking profits out of your deposits even before the expenses. This allows people to invest in themselves, which will eventually lead them to financial freedom. The system incorporates moving predetermined percentages of the deposits to different bank accounts. This covers taxes, profits, operating costs, revenue, and owner’s payments. This allows for costs to be prepared for ahead of time, and this starting to free up more and more cash flow over the long term.

Some suggest that that when opening bank accounts, you should open three accounts: Income, Operating Expenses, and Owners Compensation. The amount of money you move into each account is established by Target Allocation Percentages (TAPS). However, we think you should base your strategy and plan on what makes sense for you to invest in your business. If you need an advertising budget account, then make one. Just have a plan!



Money is vital for living, so you should take the considerations of preparing, saving, and investing as a small business owner very seriously. All small business owners are suggested to stay proactive and take control of their financial future, and ask questions to learn how to invest in their business. You will benefit in both your business and personal finances, as they become more secure and present more opportunities as you grow your wealth efficiently.

About the Author

Aaron is a financial planner who is passionate about helping small business owners create wealth in an efficient way. Helping you define your vision for a wealthy life in both money and lifestyle, Gig Wealthy helps you reduce taxes, manage cash flow, and optimize retirement savings with strategies advised by world class financial panning firms.