When to invest in your solo business

Though I long resisted the label, I have been a solopreneur ever since I started working as a freelance writer in 2010. As the owner, manager, and only employee, all decisions about my solo freelancing business are up to me—which continues to feel simultaneously invigorating and terrifying.

But not all daunting solopreneurship decisions are the same. While taking creative risks and pitching big names continue to cause some minor fingernail-chewing even after all these years, investing in my business is the leading cause of second-guessing (and third-guessing, fourth-guessing) my own abilities as an entrepreneur.

Many other solopreneurs share my lack of confidence about investing in a solo business. Not only do solo entrepreneurs tend to suffer from a kind “money dysmorphia” telling them they are one bad month away from everything falling apart, but the kinds of investments you make for a solo business don’t typically offer a clear return on investment.

While a factory owner can typically draw a straight line from their investment in newer equipment and higher output, a solopreneur generally can’t know for sure that the social media ad buys, the coaching, the annual subscription, or the virtual assistant moved the needle for their business. So how do you decide when and whether to invest your money into your solopreneurship when you can’t predict the ROI—or even necessarily observe it after the fact?

Build a firewall between your business and personal finances

Reinvesting in your business often tends to be scary because solopreneurs have irregular income. It feels like tempting fate to drop a significant amount of your big payout this month on an investment into your solo business—because, our paranoid monkey minds tell us, doing that practically guarantees your clients will dry up next month. And then you will have spent your grocery money on a new business laptop that could have waited six months.

This is why part of making solopreneurship sustainable is creating a financial safety net. Specifically, solopreneurs must put a firewall between their business and personal budgets. Though it may take some time to get there, your goal is for your solo business to pay you a salary.

Here’s how that would work:

While you’re in feast-or-famine mode, open a business savings account, and transfer any excess cash into it during high-income months. Even if you don’t have “excess cash,” commit to putting something aside, even if it’s just five bucks. This will create a habit that helps you build up a cushion for lean months when you don’t have many clients or you have to chase the ones you have for payment. Over time, this savings account will begin to grow large enough that you can start paying yourself a biweekly salary.

Once you have reached that point, you can switch to having your payments deposited directly into the savings account rather than the checking account. By then, your biweekly salary payments can be automated, so you can feel confident that your personal budget and expenses are covered.

By setting up your business finances this way, you will have a better sense of how your business is doing and what kind of business cash flow you have without getting it confused with your personal cash flow.

Earmark some money for business development

In Vegas, it’s a huge mistake to gamble with money you can’t afford to lose.

The same is true with risking an investment into your solo business—or any business, really. (For every Apple IPO, there are hundreds more pets.com failures.)

If you’re a risk averse solo business owner (like yours truly), it can feel safer to simply clench your teeth and try to grow without spending a dime. (Trust me, it’s painful, slow, and kind of boring).

But my years of avoiding the “risk” of investing money in the wrong business opportunity ignored the second half of the advice. Taking a calculated risk on money I can afford to lose is well worth it.

Which is why, after eight years of freelancing, I started setting aside 5% to 10% of my income to reinvest in my business. Having this money specifically earmarked for business expenses and investments helped me feel more confident about potential development opportunities that couldn’t promise a specific ROI. If these opportunities didn’t pan out, I could afford to lose the money.

Even if consistently setting aside a percentage of your income isn’t possible, you can find potential business investment money in lots of other places, such as your tax refund, a gift or inheritance, or an unexpected bonus from a client.

Act slowly and carry a big notebook

Even the most decisive solopreneur can get stuck in analysis paralysis when it comes to investing in their business. You may worry that you’re missing out on incredible opportunities, but you may also worry that you’re throwing money away.

It’s in this state of indecision that we’re most vulnerable to the kind of high-pressure sales pitches that we’re most likely to regret later—since those pitches often come couched in the language of absolute certainty, whether you’re talking to the salesperson at the Apple store who is trying to get you to upgrade to a more expensive laptop, or the marketing “expert” who wants you to commit to 12 months of one-on-one coaching for tens of thousands of dollars.

To help you identify investment opportunities that are more likely to benefit you and your small business, follow these steps:

1. Commit to at least a 24-hour period before buying anything. This protects you from your own enthusiasm and gives you a chance to let your cooler head prevail.
2. Write down what you hope the investment can do for your business. There are no guarantees that you’ll get these returns, but the act of writing down your hopes can help you see if they are realistic or pie-in-the-sky thinking. It’s even better if you share your thoughts with a colleague in the same or a similar field.
3. Create a premortem. In business, teams will sometimes conduct a premortem before starting a major project to identify the things that are most likely to go wrong. If you’re looking to invest a significant amount of money into your solo business, create a premortem beforehand to identify what could go wrong with your investment so you can shore up those potential problems—or abandon the investment if the issues seem inevitable.

The few, the proud, the solopreneurs

Working for yourself as a solo business owner is not for the faint of heart. Not only do you have to deal with all the problems that come with entrepreneurship, but you also have to make all the hard decisions—including when to invest money back into the enterprise.

While investing in a solo business will never be a clear decision, there are several things you can do to make the process feel less terrifying. To start, creating a firewall between your business and personal finances will help make your business decisions feel less personal. From there, earmarking some money for business development can help you feel more comfortable investing, since the money will be cash you can “afford to lose.”

Finally, you’ll feel more confident about the opportunities you choose to put money into if you commit to a waiting period before making any purchases, write down what you hope to get from the investment to check that your expectations are realistic, and conduct a premortem to identify likely problems.

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