Home Business Insights & Advice A guide to better invest in businesses

A guide to better invest in businesses

by John Saunders
30th Sep 21 1:44 pm

Operating a business entity is no stroll in the park, particularly when you’re running low on capital. Sadly, a business cannot be run on determination and skill alone. If you are experiencing some financial constraints, then it’s high time you consider making a couple of investments. Here are some investment tips that can help the ordinary small business owner get started.

1. Begin with penny stocks

A penny stock is essentially a normal stock that’s valued at less than a dollar on the market. It’s a very unstable investment, but worth very little which makes it an excellent place to begin your investment journey. When you are a small business owner, you can begin trading penny stocks to find out more about how the market works and grow your skills as an investor. When you’ve grown accustomed to how the market works, you may opt to continue trying penny stocks or consider proceeding on to different investment opportunities.

2. Make sure your investments are in-line with your business interests

As a small business owner, there are various elements of your business you need to take into account before making any sort of speculation. To start with, you’ll need to review your financing, debt load, business plan, and business goals. Investments should be about boosting income, not supplementing it.

To put it differently, transferring money meant for another section of your business in order to increase your holdings isn’t a prudent idea. If the investment you’ve made fails, you will have lost capital on your business and investment, which will be hard to recoup, especially if there’s no cash flow. As an alternative, ensure that you’ve aligned your investments with your business interests. Make your down payments using surplus profits, and always keep in mind that you shouldn’t treat investing like gambling.

3. Diversify investments

It goes without saying that in the investment game, you shouldn’t place all your faith in a single investment opportunity. This way, if one investment doesn’t pan out, you’ll still be banking on the others to pull through. As an investor, this will minimise your overall risk and assist you to safeguard your business’s best interests. Even the safest investments aren’t always spot on look at the UK after Brexit – read more about it here on this blog on Investment trusts

4. Consider mutual funds

To make a shrewd investment, you need to consider the degree of risk and return, and ensure that there’s a balance. If you are beginning your journey, the less risk you take, the better – putting your money in a mutual fund is an excellent place to begin.

In big mutual funds, multiple stocks are put together in a single place, and a fund manager invests the cash into the fund for the growth rate to increase. The chances of losing cash in such an investment are very little, which makes it a feasible money-making opportunity. With your stocks gradually increasing, you’ll have a better understanding of the ups and downs of the market and be better prepared for future ventures that may come your way.

5. Keep time on your side

Most amateur investors think that investing is a get rich quick scheme, but that couldn’t be more wrong. Rather, investing is more of a long-term strategy where those who wait will receive the best returns. Even when the market isn’t doing too well, it’s not a valid reason to withdraw your money. The resulting returns from a bear market tend to be significantly high, but only for those who were patient enough to sell at the right time. Pulling your investment when the market is performing poorly and then investing back again when things begin surging will see you lose out on getting high returns for your troubles and you’ll know you made the right choice.

6. Avoid leverage

There’s no denying that leverages can amplify your profit margins, but it’s crucial to keep in mind that things can oscillate the other way also. It can increase your losses just like your profits, and when your business is on the line, that’s too much to take a gamble on. If things aren’t going as planned, the broker can issue a margin call, which will see the investor put in additional money to offset the deficit.

7. Minimise taxes and fees

Sadly, selling and trading within the market scene isn’t free of charge. There are usually taxes and hidden fees you need to take into account. These costs can sum up to 30% of your total returns if you don’t keep a lid on them from the get-go, which is why it’s so important that you reduce the charges you incur. Before making any investment in the company, make sure to review the taxes and fees involved to establish whether the fees are worth it.

Investing isn’t something to be taken on a whim. You’re placing your small business on the line and a sequence of wrong moves can land you in big trouble. Enter the market with caution and ensure that you’ve covered all your bases first.

Operating a business entity is no stroll in the park, particularly when you’re running low on capital. Sadly, a business cannot be run on determination and skill alone. If you are experiencing some financial constraints, then it’s high time you consider making a couple of investments. Here are some investment tips that can help the ordinary small business owner get started.

 

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.

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