You’ve poured everything into building your business. Long hours, calculated risks, and sheer determination have finally begun to pay off. Your SME is generating healthy profits, and for the first time, you have surplus capital that isn’t immediately needed for operations or growth. Now comes an entirely different challenge: learning how to make an investment that will secure your financial future beyond your business.
Many SME founders are brilliant entrepreneurs but complete novices when it comes to personal investing. You understand profit margins, customer acquisition costs, and operational efficiency—but investment portfolios, asset allocation, and market volatility? That’s unfamiliar territory. This five-step checklist will help you navigate your first investment decisions with the same strategic thinking you apply to your business.
Step one: Establish your financial foundation
Before you even consider how to make an investment, you need to ensure your financial house is in order. This foundational step is crucial and non-negotiable.
Start by building an emergency fund. As a business owner, you already understand the importance of cash reserves for your company. Your personal finances deserve the same protection. Aim for three to six months of living expenses in an easily accessible savings account. This safety net ensures that unexpected personal expenses or business downturns won’t force you to liquidate investments at inopportune moments.
Next, address any high-interest debt. Credit card balances, expensive personal loans, or other high-interest obligations should typically be cleared before investing. The guaranteed “return” of eliminating 18% APR credit card debt almost always outweighs potential investment gains.
Consider your pension situation as well. Many SME founders neglect pension contributions whilst building their businesses. If you haven’t been contributing regularly, starting or increasing pension contributions might be your most tax-efficient first investment, offering both growth potential and immediate tax relief.
Finally, ensure you have adequate insurance coverage. Life insurance, critical illness cover, and income protection become even more important when you have dependants or significant business obligations. These aren’t investments in the traditional sense, but they protect the investments you’ll make.
Step two: Define your investment goals and timeline
Understanding why you’re investing is just as important as knowing how to make an investment. Your goals will fundamentally shape your investment strategy.
Are you investing for retirement in 25 years? Saving for a property purchase in five years? Building wealth to eventually step back from your business? Creating a fund for your children’s education? Each goal demands a different approach.
Your timeline directly influences your risk tolerance and asset allocation. Longer time horizons generally allow for more aggressive growth strategies, as you have time to ride out market volatility. Shorter timelines typically require more conservative approaches to protect capital when you’ll need it.
As an SME founder, you might have unique considerations. Perhaps you’re building an investment portfolio as a diversification strategy, reducing your overall financial dependence on your business. Maybe you’re planning an eventual business sale and want to establish investment habits before receiving a lump sum. Or you might be creating passive income streams to give yourself flexibility in how much time you dedicate to your company.
Be specific and realistic about your goals. “I want to grow my wealth” is too vague. “I want to build a £500,000 investment portfolio over 15 years to provide income flexibility when I’m 55” gives you something concrete to work towards.
Step three: Educate yourself on investment basics
You wouldn’t launch a product without understanding your market. Similarly, you shouldn’t invest without grasping fundamental concepts. Learning how to make an investment wisely requires foundational knowledge.
Understand the main asset classes available to you. Equities (stocks) represent ownership in companies and historically offer strong long-term growth but with volatility. Bonds are essentially loans to governments or corporations, generally offering lower returns than stocks but with less volatility. Property can provide both capital growth and rental income but requires more capital and management. Cash and cash equivalents offer security and accessibility but minimal growth, often losing value to inflation.
Learn about diversification—the principle of spreading investments across different assets to reduce risk. The old adage “don’t put all your eggs in one basket” is particularly relevant. As a business owner, you already have significant exposure to business risk. Your investment portfolio should diversify away from that concentrated risk.
Understand the relationship between risk and return. Higher potential returns invariably come with higher risk. Anyone promising guaranteed high returns with low risk is either mistaken or misleading you.
Familiarise yourself with investment fees and costs. Management fees, platform charges, and transaction costs can significantly erode returns over time. A seemingly small 1% annual fee difference can cost you tens of thousands of pounds over decades.
Finally, understand the tax implications of different investment vehicles. ISAs offer tax-free growth up to annual limits. Pensions provide tax relief on contributions but restrict access until later life. General investment accounts offer flexibility but growth is subject to capital gains tax.
Step four: Choose your investment approach
Once you understand the basics, you need to decide how actively involved you want to be in managing your investments. How to make an investment successfully depends partly on choosing an approach that matches your available time, interest level, and expertise.
The DIY approach involves researching and selecting individual investments yourself. This offers maximum control and potentially lower costs, but requires significant time, knowledge, and discipline. As a busy SME founder, you might not have the bandwidth for extensive investment research and portfolio management. If you do pursue this route, start small while you build knowledge and confidence.
Robo-advisors offer automated investment management using algorithms to build and rebalance portfolios based on your goals and risk tolerance. They’re cost-effective, accessible, and require minimal ongoing involvement. Services like Nutmeg, Moneyfarm, or Wealthify can create diversified portfolios from modest starting amounts. This middle-ground option provides professional management at lower costs than traditional advisors.
Financial advisors provide personalised advice and portfolio management. Independent Financial Advisors (IFAs) can consider your entire financial picture—business, personal, tax situation—and recommend strategies aligned with your specific circumstances. This is often the most suitable option for SME founders with complex financial situations, though it’s also the most expensive. Look for advisors who are chartered and regulated by the Financial Conduct Authority.
Passive index funds deserve special mention. Rather than trying to pick winning stocks, index funds simply track market indices like the FTSE 100 or S&P 500. They offer broad diversification, low costs, and historically have outperformed the majority of actively managed funds over long periods. Many successful investors, including Warren Buffett, advocate for index fund investing for most people.
Many SME founders find that a hybrid approach works well—perhaps using low-cost index funds for core holdings whilst working with an advisor for complex decisions around business exit planning, pension structuring, and tax optimisation.
Step five: Start investing and establish discipline
Analysis paralysis stops many first-time investors from ever beginning. At some point, you need to take action. The good news is that you don’t need to invest your entire surplus immediately.
Consider starting with a modest amount—perhaps a few thousand pounds—whilst you gain experience and confidence. This “training wheels” approach limits potential losses whilst you learn how markets work and how you react to volatility.
Establish a regular investment habit. Monthly contributions through direct debit remove emotion from the process and enable pound-cost averaging, where you automatically buy more units when prices are low and fewer when prices are high. This systematic approach often outperforms trying to time the market.
Set up automatic rebalancing if possible. Over time, different assets will grow at different rates, skewing your intended allocation. Regular rebalancing—selling some winners and buying more of underperformers—maintains your desired risk profile.
Resist the temptation to constantly monitor and tinker with investments. As a business owner accustomed to daily decision-making and control, you might find the hands-off nature of long-term investing uncomfortable. Remember that frequent trading typically reduces returns through costs and poor timing.
Schedule regular reviews—perhaps quarterly or annually—to assess whether your investments remain aligned with your goals. Life circumstances change, businesses evolve, and your investment strategy should adapt accordingly.
Finally, prepare yourself psychologically for volatility. Markets will fall—sometimes dramatically. Your investments will lose value periodically. This is normal and expected. Historical data shows that markets trend upward over long periods despite short-term turbulence. The worst thing you can do is panic-sell during downturns, locking in losses and missing the eventual recovery.
Common pitfalls to avoid
Learning how to make an investment successfully also means understanding what not to do. SME founders often face specific temptations and challenges.
Don’t over-concentrate in your own industry. You already have business risk there; diversify your investments elsewhere. Don’t treat investment like running your business. Active management and constant adjustments usually reduce investment returns. Don’t invest money you might need soon. Only invest capital you won’t require for at least five years.
Avoid “hot tips” and trendy investments. If something sounds too good to be true, it probably is. Don’t let ego drive decisions. You might be brilliant at running your business, but that doesn’t automatically make you a skilled investor. Don’t forget tax efficiency. Use ISAs and pension allowances fully before investing in taxable accounts.
The bottom line
Learning how to make an investment represents an important evolution in your journey as an SME founder. You’ve mastered building a business; now it’s time to master building wealth beyond your business.
Start with your financial foundation, define clear goals, educate yourself on basics, choose an approach that suits your circumstances, and establish disciplined habits. You don’t need to become an investment expert overnight—you simply need to start making informed decisions and remain consistent.
Your business required patience, discipline, and long-term thinking. Your investment portfolio demands exactly the same qualities. The time to start is now, even if you begin small. Future you—whether that’s at retirement, business exit, or simply seeking more financial flexibility—will be grateful you took this first step today.