Investing your business' profits well
Over the course of the past couple of years, increasing numbers of us have decided to start our own businesses. This isn’t all that surprising.
The coronavirus and Covid-19 pandemic has thrown many of our lives upside down and we’ve had to make a fresh start to keep ourselves afloat.
Running your own business, for many, has been a shining beacon of hope, allowing you to generate a source of income for yourself and your dependents, as well as giving you more control over your work and your pay. Now, setting up a business means learning a lot of new knowledge and skills.
From product development to market research, manufacturing, marketing, order fulfillment and more. The aim of all of this?
To make profits! But when you start generating profit, you need to make smart investments and use the money wisely to maintain financial security and earn as much as possible. Here are a few smart ways to invest your business’ profits.
Corporate investment
The official term for investing your business’ profits is “corporate investing”. Put simply, this is the process of investing your business’ profits or surplus cash instead of drawing it out as income or holding it in cash bank accounts.
It’s a tax efficient way to take cash out of your business, as it isn’t intended to be used as income and is consequently subject to different tax laws and rules.
As a business owner, you can choose to pay yourself in dividends or through a salary. However, this is taxed and if you take too much out of the business in one fiscal year, you can find that you’re hit with a hefty tax bill.
Choosing to use your business’ money to invest in wise investments can be much better! This is called “corporate investment”.
Investment ideas
There are countless ways you can invest your business’ funds. The best for you will depend on how much you want to invest, how long you’re willing to wait for profits and earnings and more.
Some of the most popular investments for businesses tend to include:
● Funds – Ever heard of mutual funds before? There are plenty of different options out there that will allow you to invest in a portfolio, bonds, securities and stocks. You can also look into sector-specific investments, such as real estate funds.
● Trusts – trusts are good for larger scale investments that you don’t want to front entirely yourself. When you invest in a trust, you put your money together with money from other investors. This can then be invested broadly or in a specific sector/area of the market you’re interested in investing in. Consider consulting Wills Trusts LPA legal services for more detailed legal assistance in setting up trusts.
● Pensions – Do you have employees? You may want to consider investing in pensions. Nowadays, if you make employer pension contributions, you can be onto a tax-efficient way of investing your business’ money. Of course, this is a really long term investment. You won’t be able to access funds until an older age.
● Stocks – you don’t necessarily need to keep the money within your own business. Instead, you could make investments into other companies or a whole bunch of companies who you think will make it big.
● Bonds – does your government offer bonds? These are considered to be a relatively safe investment. An alternative for those looking for a higher return with more risk, you could consider corporate bonds.
● Commodities – some commodities retain and gain value over time. While this isn’t guaranteed, some items like gold bars, precious metals or oil tend to be good, tangible, commodity investments.
Investing wisely
Whatever you decide to invest in, it’s a good idea to make sure that you’re making the right decision before putting any money down.
All too many people jump straight into investing without actually knowing what will be best for them and their company. There are a number of steps you can take to make wise investments. The first is to ask for professional assistance while you get used to the territory.
There are countless financial advisors and investment management companies out there who can help. From accountants to commercial buyer agents for property, search local services that know the area you’re investing in inside out. They’ll be able to let you know what’s good to go and what you might be better avoiding.
Managing your investments
Some investments take time to garner profits, money or interest. You might not get a return within a matter of weeks, months or even years.
Managing them can be time consuming, as it involves keeping a track of trends, understanding the general field you’re investing in and keeping up to date with every element of the process.
When you’re already running a business, this can be excessively time consuming. There are professionals out there who can mind and manage your investments for you. Ask around for recommendations and you should be able to find someone who can offer the services you require.
Keeping records
You do need to make sure that you keep a record of your investments.
Not only is this important so that you can keep track of your investments and that you don’t forget any, but it’s also important for tax purposes. Your accountant is likely to want documents showing what you’ve invested and when.
This will help them to file your tax reports and documents at the end of each fiscal year. It can make sure that you’re paying the right amount of tax and that you don’t find yourself in trouble later down the line.
Be vigilant with your record and document keeping, making sure to keep copies of anything relevant to your investments. If possible, try to make sure that they are put into a digital format and uploaded to cloud storage solutions too.
Of course, there are countless other ways you can invest your business’ profits. But hopefully, the suggestions above might appeal to you and could help you to make as much money as possible in the long run. Give some a try!
