Here’s How You Can Diversify as a Business Owner

Last Updated: 

March 30, 2024

Many business owners put most of their financial resources into their primary businesses. Concentrating your resources like this can lead to significant gains if invested in the right areas. However, it can also present a significant risk if the business does not perform as expected. One way to protect yourself is to diversify outside the business. Doing so allows you to manage risks, achieve consistent financial returns, and reduce income swings. Let’s look at some ways you can do this.

Key Takeaways on Diversifying as a Business Owner

  1. Diversification for Risk Management: Diversifying outside the primary business helps manage risks and mitigate income swings, providing stability and consistent financial returns.
  2. Buying Another Business: While risky, acquiring another business offers access to new markets and financing leverage, potentially driving rapid and continuous growth.
  3. Exploring Traditional Investments: Considering traditional options like stocks and gold can offer additional diversification avenues, providing stability against economic downturns and inflation.
  4. Investing in Disruptive Trends: Investing in disruptive industries and companies allows business owners to benefit from significant growth opportunities outside their primary business focus.
  5. Consideration of Environmental and Social Impacts: Business owners should also consider investing in companies with positive environmental and social impacts, aligning with their values while diversifying their investment portfolios.
  6. Research and Due Diligence: Prioritise research and due diligence when exploring diversification options to identify high-potential investments and minimise risks.
  7. Long-Term Growth Strategy: Diversification should be viewed as a long-term growth strategy, providing stability and driving future growth for business owners.
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Buy Another Business

This is perhaps the riskiest diversification option for several reasons. First, it ties up your financial resources until the second business starts returning a profit. Second, there could be a steep learning curve if you have never been involved in that specific industry or niche. 

However, it can also be beneficial in significant ways. The first is access to new markets. The new business might already have market share in a market you are interested in but cannot break into with your existing business. If the new one’s products and services complement the ones provided by the existing business, there is massive potential for rapid and continuing growth.

Second, it gives you more financing leverage. The other business likely has assets you can leverage if you need additional capital. This means you can borrow against it without risking your primary business. Also, you now have two businesses and sets of assets you can leverage if you need additional funds for things like geographic expansion, hiring additional workers, or digitising either or both businesses.

Explore Traditional Investment Options

Understandably, many business owners do not want to shift resources from their businesses into traditional investments like stocks and gold. However, these can provide additional diversification avenues that could be beneficial and profitable.

Even though there are no guarantees about the potential returns on these additional investments, you can do your research to find ones with high potential returns. Stocks are a great option for this. 

However, you may also want a store of value to hedge against inflation and economic downturns that can affect your primary business. Gold is an excellent option for this latter scenario. You can invest in physical gold through reputable sellers like Bullion Giant and have it delivered to you. Gold is very stable and will provide the stability your business or other investments might otherwise not provide.

Invest in Disruptive Trends, Technologies and Industries

There are many instances where you may not be able to compete with disruptive forces outside your control. In these cases, you can invest in disruptive themes like robotics and automation, genetic therapies, fintech, and health tech that all have significant potential for growth. While you will not be involved in these industries directly, you will benefit from their growth.

Business owners should also consider investing in disruptive companies. These are doing great things in new areas that generate risk-adjusted financial returns and have significant environmental and social impacts.

Diversification is not only for individuals because business owners should also consider it part of their investment strategy. Fortunately, business owners have several options to choose from that can diversify their incomes, provide much-needed stability, and drive future growth.

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