Effective tips on investing your business profits in a limited company
Tue 3 September 2019 - 2:47 pmPartner Content
All entrepreneurs and business owners will naturally be preoccupied with making money. This is, after all, what helps you to not only continue to operate but also stimulate business growth. Generating enough revenue helps you to pay staff wages but is also key for buying stock, paying business rates and settling other bills. Not quite as much thought sometimes goes into how to successfully manage the actual profits you make once this has all been done though.
Many business owners will simply let them sit in their business bank account until they need to use them. While this delivers zero risk, it is often not the best way to manage your profits and offers scant reward. Many entrepreneurs will instead choose to invest a portion of their profits in order to gain better returns on them.
What could you invest some of your profits into?
If you are looking to manage some of your business’s profits through investment, there is actually a good deal of choice. While markets such as forex or assets such as property or bonds can be tempting, many companies still choose to invest directly into limited companies on the global stock markets.
But why is this? The beauty with investing in a limited company’s shares is that they represent an easy way to put your profits to work with a genuine chance of seeing a decent return on them. Stock investment is simple to understand and easy to access through online brokers, which makes it ideal for all types of investors. Of course, as with any kind of investment, it is wise to take on board a few tips before you start so that you have the best chance of succeeding.
Make sure to avoid any fraudulent strategies or companies
Investing in the stock market is usually done online now – certainly for business owners in other sectors who are investing their profits this way. It is therefore key to always be on the lookout for scams or fraudulent activity that could affect you. A good example of this is making sure that the broker you trade with is trustworthy.
Many investors will take steps such as looking at online broker reviews to do this and stay safe. This AvaTrade review not only highlights what a good broker should look like but also how online reviews can help. Make sure to also look out for other potentially malicious online activity around investing in shares, such as trading strategies that are too good to be true and robotic advisors that turn out to actually lose you money after you have paid for them.
Check their previous performance
Once you are ready to actually manage some of your business profits by investing them, you should conduct thorough research into any limited companies in which you are interested. The key thing here is to dig into their previous performances over the last ten years (or as far back as possible if they have not been listed for that long). This is a good indication of whether it is a sound investment that can be expected to deliver the returns needed over a given period of time. You should also look at the charts over this period to pick up on any recurring patterns that could inform your investment decisions.
Don’t just go for the hottest sector
When looking at putting money into shares, do not just head straight to the sector that is hot right now. While you may think that this is wise, it could be that the sector in question is at the upper limit of its potential and be about to decline over time. You must do your research on whether the trend in the sector can continue to climb, or look at others that may be low now but could be about to explode. This will give you a much greater chance of succeeding overall.
Try to find a mentor
Investing your spare profits in this way can get you a decent return but may be too much to take on alone for some entrepreneurs. In this case, you would be well advised to find an experienced mentor who can guide you along the way, show you how to read the markets, and conduct the proper research needed. If you do not know an experienced investor personally, try to connect with one through networking sites such as LinkedIn or internet forums.
Make your profits work harder
You work hard, so your profits should too. This is effectively the idea behind investing into limited company stocks rather than leaving all your profits in the bank. When done right, it can help to build up your business’s wealth over time and actually grow the cash you make. Just remember to only invest what you can afford to lose, and always keep some back as an emergency fund.