You’ve been doing your homework and feel like you’ve got a handle on how personal investment works. You’ve also been paying very close attention to your business’ finances. You feel like you’ve got a solid handle on the whole make things, sell things, pay employees, profit! Way of doing business. Now you’re ready to take on the world of business investing… or are you?
Business investing-as an activity-actually isn’t all that different than personal investing. The primary difference is that now you are using the company’s money for those investments instead of your own personal stash. This means that every investment you (your company) make is a gamble with the livelihood of every person who works with, for and has invested in your company. Are you ready to take that risk? If so, here are some tips.
1. Be Stingy
It’s okay to take risks with your personal money. It’s another to take risks with your business’s profits. When you see a good potential investment try to figure out how much you’d be willing to put into it. Then divide that number at least by four. 25% of what you would invest yourself is the most you should invest of your company’s money…on anything.
2. Go Slowly
When you’re setting up a personal investment portfolio, you’re usually working with a financial adviser who can help you take the amount of money you feel safe investing and spread it out over a few different properties and types of investments.
The same is true of business investing, but you need to proceed with far more caution. “The best way to maximize profits and minimize risks when investing in stocks,” advises 1Wealth Trading, “is to create a portfolio that allows funds to be spread across different industries and business sectors.”
3. Over Diversification
Unless you have dreams of turning your business into a huge multinational multifaceted corporation (like Proctor and Gamble), it is possible to have too much diversity in your company’s investment portfolio. It’s better to invest in a few key things.
4. The Merger
Many business owners choose to invest business capital in another company as a means of merging with that company to form a whole new company. Typically this happens because Company A is in trouble and is in need of saving so Company B steps in, makes a big investment and, essentially “swallows” Company A. Do not be hasty with these decisions-they affect your own company as well!
Merging with another company might seem like a great investment now, but remember: the jobs and livelihood of your own company team are your responsibility. Mergers often mean layoffs on both sides. Are you ready to deal with those repercussions?
If you are still a relatively new business, it might be better to wait until you are more established to merge with another company.
Of course, whatever you decide to do with your company’s investment portfolio, make sure you get the advice and guidance of a professional. Don’t go it alone. Enlist a lawyer and a financial advisor’s help to assist you in figuring out where to put your company’s money.
About the Author: This article is written by Tara Miller