April 12, 2022
Many companies find themselves in the position of having surplus cash after covering all operating expenses, debt obligations, and necessary working capital requirements. While retaining this “leftover” money in your organisation may seem like a good idea, it can present some challenges further down the line. Idle funds don’t generate significant returns, which means you miss out on gains from investing in growth initiatives. Moreover, the purchasing power of cash can weaken over time due to inflation. If you don’t have a clear plan for the extra cash, the money will be spent in an inefficient or extravagant manner.
Accumulating excess capital in your company can cause issues at a later stage with succession planning, so working out how to manage extra cash now could be essential. If you have more cash than you actually need, use it to grow your profit. During economic downturns, it will empower you to invest in competitors or seize market opportunities. Withdraw the money to place in carefully considered investments. Open a limited company dealing account to build and develop a portfolio of investments.
Investing as a business operates on a different playing field compared to investing as an individual. You do so within a framework of strategic intent, scale, and regulatory oversight that’s far more reliable. Conversely, individuals have a more direct approach to building wealth, so decisions can be more agile. More than half of them consider crypto a vital component of their wealth strategy. For anyone interested, a quick scan of crypto news today can reveal important trends. Seeking the professional advice of a financial adviser can be helpful.
Your personal appetite for risk is reflected in the decisions you make to meet your strategic objectives. Organisations have different risk appetites depending on their culture, sector, and goals, and these may change with time. Finding where you stand on the risk spectrum is a key step in building a successful investment strategy, so be honest with yourself about your level of expertise. When you invest, the decision process must include due diligence, board approvals, and strategic fit analysis. The time horizon can span years or decades.
The list below offers safe investment ideas:
A high-yield savings account lets you access your money at any time. The interest rate is generally higher than rates available from a traditional savings account. When you open a high-yield savings account, you enter into a partnership with the bank, which puts your money to work by lending it to others or investing it.
You agree to keep your funds in a CD without removing funds for a specified amount of time. Early withdrawal penalties that range from 90 days to 365 days’ worth of interest. It’s recommended to compare different offers by looking at the terms, interest rates, and amount of penalties for withdrawing money.
Corporate bonds provide a predictable income stream, and you have a guarantee that you’ll get back the face value of the bonds upon maturity. The safest type of corporate bond is called investment grade. Those at the top of the risk scale are referred to as junk bonds.
Index funds have predictable relative performance. If the index goes up by 1%, the value of your investment will typically go up by 1%. There are other factors that affect profit, but the general idea is to mimic the actual index as far as possible. By buying an ETF, you can diversify your portfolio without having to select individual stocks or bonds.
Investing in venture capital can deliver high-risk-adjusted returns from supporting start-ups and early-stage companies with the potential for rapid growth. When these enterprises take off, the returns generated are substantial. Be specific and realistic when you’re negotiating. Think about what will help you create and capture value over the long run.
Needless to say, you’re subject to corporation tax on income and gains from your investment. The amount of liability depends on what type of asset your business owns and the size of your company, and this should be checked with your accountant. Trading profits are calculated by deducting certain allowances or reliefs, together with any expenses incurred wholly and exclusively for the purpose of trade. Capital gains are taxed on realisation rather than accrual. You may get tax relief for a trading loss.
If employees acquire shares in the company, they may be charged to income tax on the difference between the price paid and the market value. Suppose restrictions and conditions are placed on the shares. In that case, further income tax charges may arise on disposal. External investors may be granted capital gains tax relief on share sales. Nevertheless, the shares and the relationship with the company must meet specific conditions – e.g., the shares must be hold for at least three years.
As an entrepreneur, you’ll find yourself at a crossroads every time you need to make a financial decision. Where you invest your hard-earned cash is entirely up to you, but take some time before taking action and consider the following areas of importance:
You can reinvest the surplus funds into your business. The extra cash can be used to augment your product line or services, upgrade your equipment, or increase your marketing efforts. The decision is up to you.
