Investing in your trade business for maximum returns

For business-owning tradies like us, being able to dictate the direction of our lives is the main reason we took on the daunting task of starting a business. We wanted to be in the driver’s seat and have the freedom to choose our lifestyle and control how much money we make and what we do with it.

And it goes without saying that being a business owner can be incredibly rewarding. For instance, when you first see great profit being generated because of your hard work, it’s a moment of genuine pride and often prompts you to seek greater success as a result.

However, once that profit flow becomes consistent many trade business owners face the question: how much of that profit should go towards my lifestyle, and how much should go back into my business?

Forbes magazine notes that when it comes to reinvesting back into your business, “Conventional wisdom places the number at around 30% of profits — with some people suggesting as high as 50%. The actual amount varies, but the secret is to reinvest based on an actual strategy as opposed to a set amount/percentage.”

Having a clearly defined strategy is the critical element when deciding how to divide up your profits and choose the right amount to invest in your business. The percentage you settle on should be based on facts and data, and often the best-equipped person to provide these insights is your accountant, who can help you settle on an exact figure much faster.

Once you have that figure set in stone, it’s time to invest. Here are three avenues you can take to ensure maximum returns on every dollar you spend.

#1 Concentrating your money on a single area of your business

There are many benefits to pouring your investment money into a single aspect of your business. But the main advantage is that it allows you to focus on growth in one area without distractions.

Opting for this approach, however, means founding your actions on both strategy and opportunity-oriented thought. For instance, some plumbing businesses also offer roofing services. If none of your local competition provides that service, then it would be a strategic move to spend your cash on upskilling your staff specifically to capitalise on that opportunity.

But always remember! If you are upskilling your team, make sure you lock them in with a contract. Don’t spend big on upskilling staff just to have them quit a month later.

Focusing on a single area of your business for investment has the additional benefit of being suitable for budgets of all sizes. You can even use these single-area investments to test strategies that can then be applied more widely across your business, helping you push your hard-earned dollar even further.

#2 Selecting multiple areas of your business to focus on

The second option is spreading your budget across multiple key areas that each can benefit greatly from investment. But be aware that many business owners make the mistake of thinking that investments need to be evenly distributed across these areas, which is often an ineffective choice.

By triaging your business needs, you can clearly define which areas need urgent attention and then allocate them a higher portion of your budget.

If you are unsure where to start, marketing is traditionally an area that many trade businesses neglect, and therefore can benefit greatly from an increase in budget. It could be as simple as investing in new truck signage or giving your website a much-needed update. But regardless of where you choose to invest and in what order, it’s important to be smart about how and where you split your cash.

#3 Growing your business by growing your team

If your business is running smoothly and you are confident that this trend will continue, then growing your team might be the best place to invest for maximum returns. This may take up a large portion of your budget, if not all of it, especially when hiring highly skilled tradespeople. Consider also that new staff bring with them additional costs you might not immediately consider. You may need to purchase more equipment, a new truck and even increase your spending on insurance to account for the new addition to your team.

We only recommend this approach if your business is stable enough to absorb these costs without any issues. If you aren’t quite there yet with your trade business, maybe consider the previous points we’ve covered in this article before hiring that additional person.

Get a head start and download our guide: ‘Growing your team the smart way’ by scanning the QR code below to learn how to scale up your business without it turning into chaos.

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But overall, investing back into your business is always a good choice when you base your investment decisions on strategy and critical thinking. Just ensure that there is always a return on investment and allocate your budget based on what your business can handle long term.

If you’re ready to invest back into your business but you’re unsure of which avenue is right for you, let’s chat! Book in a strategy session with me, and we can talk one-on-one about your business situation and work out the best way forward. Book at www.lifestyletradie.com.au.

Written by Andy Smith

Andy Smith

Andy Smith is a fellow trade business owner of Dr DRiP Plumbing and co-founder of Lifestyle Tradie, a membership and community for tradies in business.