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What Small Business Owners Need to Know about Diversification and Asset Allocation

As a small business owner, you wear many hats. You may be responsible for everything from product development, marketing, sales, along with many other tasks. On top of all that, you also need to be mindful of your financial strategy.


While it’s easy to focus on the day-to-day operations of your business, taking the time to understand diversification and asset allocation can significantly impact your long-term financial success, as these are crucial for managing risk and sustaining growth.


When you have a good understanding of diversification and asset allocation, it allows you to make more informed decisions about your business’s financial future. Remember, building a successful business is not just about generating revenue; it’s also about making smart financial decisions that will safeguard your investments and support your long-term growth.


Understanding Diversification and Asset Allocation

Diversification and asset allocation are both important concepts for small business owners. Diversifying investments helps reduce exposure to risk and spread out any potential losses over various asset classes.


By diversifying your portfolio, you can ensure that you are not overly exposed to just one asset class or market sector, which can help protect your investments from significant losses in the event of a downturn in any particular market.


Asset allocation, on the other hand, is the process of allocating a portion of a portfolio across different asset classes to maximize returns while minimizing risk. This aims to create a portfolio that aligns with your financial goals, risk tolerance, and time horizon.


Take the story of a  local bakery as an example, where the business owner needed to diversify and allocate its assets to effectively manage the investments and ensure the long-term success of the business.


The bakery was initially thriving, but the business owner recognized the limitations of relying solely on retail sales. This led the owner to partner with a community bank to develop a diversification and asset allocation strategy where they can mitigate reliance on retail sales and generate additional income streams to boost overall profitability.


Diversification and Asset Allocation Strategy:

  • Invest in Commercial Kitchen (Real Estate: 25%)
  • Develop Online Store (Technology: 20%)
  • Invest in Marketing and Branding (Marketing: 15%)
  • Maintain Existing Investments (Financial Instruments: 40%)


This strategy provided a safety net and additional revenue streams, increasing the bakery’s resilience and growth potential. But remember, this is a suggested strategy based on the local bakery’s situation. It is crucial to consult with an expert to tailor a personalized diversification and asset allocation strategy that aligns with your unique business goals and risk tolerance.


Building a Diversification and Asset Allocation Strategy

Creating a diversification strategy begins with setting realistic goals.  It’s crucial to thoroughly assess your current financial situation, including understanding your cash flow, existing investments, and financial obligations.


Along with a diversification strategy, you should also have an asset allocation strategy. This should be done after evaluating the risk/return profiles of each asset class.


As you build and implement your diversification and asset allocation strategy, it is essential to monitor your progress and make adjustments as needed. This may include changing your goals, adjusting your risk tolerance, or reallocating your resources.


Partnering With a Community Bank

Developing a comprehensive diversification and asset allocation strategy requires thorough planning and consideration of various factors. By partnering with a trusted community bank, you can benefit from personalized guidance, access to a wide range of investment products, and ongoing support as you work towards your business goals.


If you plan to start with diversification and asset allocation, don’t hesitate to contact us.  At Crown Bank, we take pride in being a resource for you and helping you navigate the complexities of diversification and asset allocation, safeguarding your business’s financial stability and fostering long-term growth.