There are many different aspects to think about when it comes to investing your business profits. Before you jump into investing your hard earned money you should think about risks associated with those investments and ensure you don’t end up losing all the profit, and some. It helps to establish certain rules for yourself that you can follow and ensure you don’t deviate too much from them. These rules can be different for different people depending on their unique situation and risk tolerance. Below we provide some common rules that you can use as a guide to come up with your own.
Only use your surplus
First of all, getting into black with your finances is a significant achievement for any startup business. It can take a year or two for things to reach this stage, but you should be wary of what you do with your spare cash. While it can be tempting to look at investing those profits somewhere, you still have a little work to do. Your first goal should be to set up a safety net in the form of an emergency fund.
Aim to have at least six months’ worth of cash you can easily get your hands on before making any investment. This will protect your business in a more robust way and help you get through problem periods with ease. Once the fund has been created and has enough money in there, only then can you think about using your surplus for investments.
Invest in other types of businesses
A lot of small business owners will take all their profits and invest them in their own company. This is necessary to grow, of course. However, putting all your eggs in one basket is always a significant risk. If all your assets are in one area, it’s going to cause serious issues if there is an economic downturn. It’s also protection from when there is an explosive development in your market.
Your best bet, then, is to look at other areas beyond your business. Keep an eye out for the money pages of your favorite newspaper and websites and start to get to know the investment world. Put your money into different areas – a little property here and a few stocks and shares there. It will help you become more flexible and add liquidity to your money.
Diversify your portfolio
As we mentioned above, having a diverse portfolio protects you against many of the major investment pitfalls. There are a few things to think about. Your portfolio should be a healthy mix of stocks, bonds, property and your own business. You should also diversify by getting shares in different industries. This gives you protection from market downturns. Again, avoid your own industry to cut the risk further.
As an example, let’s say you run a small chain of restaurants. You might want to think about investing in precious metals, or technology stocks such as Facebook. As long as you keep an eye on FB stock predictions and the price of your favorite metal, you should have enough diversification there. So, if anything goes wrong in your industry, your money isn’t tied up and lost as a result.
As you can see, there are several different things to think about when it comes to investing your business profits. We hope this short guide has given you some valuable info on what to expect. Good luck, and always invest safely!