Small business owners running for-profit businesses are always looking to increase revenue, minimise losses and be as successful as possible. Running a business is extremely challenging if a business owner has to worry constantly about cash flow as well as everything else that comes with it.
Small business owners can find the money to invest in their businesses and grow their personal wealth at the same time through investing. With the right strategies and by making the right choices, both are entirely possible. In this article, we will look at a few profitable investment strategies and options for small business owners.
Align Your Investments with Your Business Goals
Before you start thinking about the investments to make, it is important to think about your business goals, financing, debt load and business plan. Remember that the main reason for investing as a small business owner is to enhance your income or that of your business, but not to supplement it unless you are an investment company.
Once you know what your goals are, it will be easier to find the money to make the right investment. Remember not to cripple one area of your business to invest. All investments carry some risk and if the investment goes sour, the area of your business you sacrificed as well as the investment you sacrificed it for will both be lost.
Invest In Your Business
When looking for investment options, most small business owners will look at external investments, with many of them not even considering that investing in their own businesses is a viable option. It may seem counterintuitive for business owners who want to invest, but it works.
When you put money into your own business, you can help ease short and even long-term cash flow and cash sourcing challenges. The more you invest into your business’s growth, the higher the rewards will be when these investments pay off.
So, where should you invest? The best places to invest include areas that directly affect the growth of the business. This can be through purchasing new equipment, launching new products, making repairs, hiring the right people or any other area that needs improvement.
Invest in Other Businesses
Another investment strategy for business owners is to invest in other businesses. There are various ways to invest in other businesses including becoming a silent partner, providing cash or even becoming part of the management for a fee. Most people choose to put up money, so this is what we are going to focus on.
Investing in other businesses can be very lucrative, especially if the business is well-positioned and has a great cash flow. Start by establishing investment goals and standards. These will guide you on the businesses to invest in and make it harder to be swayed by passionate pitches.
When investing in other businesses, always keep risk in mind. Consider what it would take for the business to be successful to assure a return on investment, what is required for it to break even, and whether you will need to put in more money in the future.
Do not let anyone tell you that any of the scenarios you think about or consider before investing cannot happen. Always assess these scenarios yourself and determine what level of risk is acceptable to you.
Consider Penny Stocks
Penny stocks are stocks that are sold for less than a dollar on the stock market. These stocks are highly volatile and so you should not put too much money into them. However, their high-risk nature ensures great rewards should these stocks improve in value.
Lots of people use penny stocks to make small amounts of money while learning how to invest and make money on the stock market. Trading penny stocks will teach you investment strategies, how to split great stocks, how to trade and so much more. Once you learn how these stocks work, it is time to move on to more conservative, highly rewarding investment vehicles.
Invest in Stocks
Investing in stocks is often about long-term wealth-building than it is for business growth. The good news is that anyone can invest in stocks. Do not let the notion that stocks are high-cost investments dissuade you; there are lots of other low-cost options as well as penny stocks which are available for a few dollars. These are often great entries into the world of stock investing.
To invest in stocks, you need an idea of the stocks you would like to invest in, the money for the investment, and a broker to help you with the trades and investment. Business owners can start by choosing a trading platform if they would like to trade the shares themselves, or an automated investment service if they would like someone else to do the trading for them.
If you do not know how to buy stocks, it would be a good idea to go with an investment platform that has financial advisors who offer investment advice as well as all the help you will need to become a successful investor.
Even when you do this, there is still a need to understand how stocks work. This is why Wealthsimple, an investment platform, has put together a detailed guide on how to buy stocks. Besides their detailed guides on everything you need to know about investing, Wealthsimple also offers investors various investment and financial tools to help grow their money. These include Wealthsimple Invest, an automated service, Wealthsimple Trade that helps you trade stocks commission-free and Wealthsimple Crypto, a tool that makes it easier to invest in crypto.
Invest in Mutual Funds
When making investments, small business owners need to find a balance between risk and reward. When starting out, very low levels of risk are always a better option. Mutual funds help you find this balance.
Mutual funds comprise different stocks that are combined into one fund. A fund manager will usually put your money in the specific funds you choose. These funds can comprise different stocks or stocks from a specific stock exchange. Because of the level of diversification that mutual funds offer, the risk of losing money is very low. This is because, even when one stock in the fund falls in price, other stocks may go up, helping provide the balance you need.
Mutual funds are great vehicles for long-term investment and are suited for wealth building rather than funding your business. Do note that some brokers and banks will allow you to sell a mutual fund when it reaches a certain profit level, and these mutual funds can fund business ventures that are one or two years away.
Invest in Retirement Plans
Retirement plans are not only an investment in the business owner and their business; they can also be a great way to invest in your employees. There are personal retirement plans that help business owners put a solid retirement plan in place.
Retirement plans for your employees, especially those that allow for interest payments, show that you value your employees and that you are thinking about their future. Because of this, they can help you with employee retention, reducing the chances of your best employees leaving the business. This way, you can stay ahead of the competition and benefit from the expertise these employees bring.
Leverage can increase your profits. It can also give you the funds you need to invest in other areas of your business – areas where you think will have a high return. However, leverage is not always a good idea. While leverage can amplify your profits, it can also amplify your investment losses. These are high-risk options that many businesses cannot afford, especially if they are not in a great financial position.
Unless you are absolutely sure about the investments you would like to make, do not use leverage as an investment vehicle. If things should go bad, you risk a margin call where you would have to put up more than you had borrowed to make up for the losses.
Establish an Emergency Fund
Research estimates that over 80% of businesses do not have an emergency fund. Much like a personal emergency fund, a business emergency fund comes in handy when the unthinkable or unforeseeable happens. In these cases, you can dip into your investments or emergency funds and get back up and running. The fund can also help you get through a rough patch or get into the market quickly if there is a spike in the demand for specific products. For small business owners, the amount put aside or invested can be a few hundred dollars a month.
As a small business owner, your business should not be your only investment. You might need to invest outside the business to either get the funds you need to grow the business or for personal wealth building. For business needs, you might want to consider short-term investment options, while long-term investment options are usually better for wealth building.