How to invest your business capital

Finding the best investment opportunity for your business isn’t something to be taken lightly. There will be many possibilities for you to look into, but only a very few of them will be right for you. Considering all of the options, and weighing up the pros and cons, can be a time-consuming matter, and it’s probably not something that you’ve got time for. After all, you have a business to run!

For this reason, it’s best to get professional advice if you’re unsure where and how to invest your money. As well as thinking about where to put it, you also have to think about how you manage your investment. Different legal structures can have different benefits or disadvantages depending on your initial position, and also where it is that you’re based. The following should only be taken as a rough guide and more in the way of helpful suggestions than a blueprint to follow.

Making the most of your money

Once your business starts to make a profit, above and beyond what you need for operating capital, it’s time to think about what to do with that surplus. If left in the company accounts or withdrawn as profits, it will generally be subject to tax. However, perhaps more importantly, your money should never be sitting still.

Finance is not designed to be a solid, stationary property. It is a lubricant and a liquid at heart, and is most effective when it is in motion, making transactions happen. In addition, few accounts pay interest that is equal to or exceeds inflation in the long term, so in real terms your locked-in cash is losing value every day.

Setting up an investment company

An alternative is to invest your money via a separate limited company. This means either setting up a holding company, of which your existing trading company is a subsidiary, or starting a completely new company and lending them the money that you want to invest. You then invest the money via the new company.

These options are to avoid your main trading company being investigated for engaging in non-core activities. This could get it classed as a close investment holding company, which could have tax and legal repercussions. Legal separation of your trading company and your investment company also makes life a lot easier in admin terms.

Starting an investment portfolio

When you start looking around at where to invest your money, you need to consider several factors. You may initially be drawn to invest in the same business sector that you’re trading in. After all, it’s what you know, and you’re best qualified to make informed decisions in this area. However, you obviously don’t want to put money into a rival company, and actually it’s a much better idea to spread your investments across a wide range of industries and sectors, creating a diverse and balanced portfolio.

You should have a mix of high and low-risk investments, with the estimated risk level of your own business as a good median. It’s good to have at least some of your capital in a safer place, and some in completely different industries altogether. Also, remember to keep sufficient liquidity aside to cover up to a year’s worth of business expenses if necessary.

Following the classic strategy of 60% equities, 40% bonds on the stock market still gives you the best chances of seeing a decent return on your overall investment, without too many scary drops in value along the way. You can tweak this ratio by up 20% in either direction depending on your risk tolerance, with equities being the more risky but potentially more profitable investment.

Get wealth management advice

Make sure to get impartial expert advice before making any decisions. Reach out to your immediate business community, especially to experts in legal, tax and accounting matters. Beyond this point, dedicated wealth management services are also available and should be taken advantage of. Creative Planning is considered one of the world leaders in wealth management, providing bespoke financial advice and other services to satisfied clients across the US. Importantly, they tailor their plans and recommendations around your personal goals, offering expert advice on how to achieve your financial aims rather than trying to sell you a service that you do not want or need.

Follow best practice

It should go without saying that there are certain business practices that you should always adhere to when making investments. This includes keeping staff pensions and payroll separate from any investment capital, and always making sure that you have enough ready funds to keep your business operating in the red. However, if you can do this and still afford to make investments, then spreading your profits around in a varied, balanced portfolio following reliable, independent advice is definitely the best way to go.