Running a company is no easy task. Even the mundane everyday tasks can become difficult to handle, let alone managing finances. Making financial mistakes or running out of money can ruin your business entirely.
Naturally, the best way to prevent such disasters is by developing a solid contingency plan. Having a plan that’s based on investments will allow you to deal with unforeseen financial difficulties without taking a heavy blow.
It’s common for a founder of one company to invest in another. If you’re running a profitable business, why not maximise your profits? Many startups rely on venture capital. The key is to choose the right startup to invest in.
It takes quite a lot of research and assessment. The owner of the startup must prove to be capable of making their business profitable in the next three to five years.
To determine whether or not the business will be successful, the investor needs to examine the company’s market analysis, social proof, financial projections, etc. The investor gets equity in the company.
Most venture capitalists pull out very quickly, as soon as they’ve turned a decent profit. It’s not uncommon for a venture capitalist to lend a helping hand to the business by providing their expertise, network, etc.
This type of investing became known to the general public thanks to shows like Dragons’ Den and Shark Tank. While most people imagine themselves as the ones pitching their ideas or businesses to Angel Investors, some seasoned entrepreneurs organise themselves into networks and groups to share investment capital.
Venture capitalists and angel investors have different agendas, although both invest in startups. Unlike venture capitalists, angel investors are not looking to turn a profit fast.
An angel investor can expect at least 25% ROI in turn for their financial support. The key is to bide your time and wait for the company to achieve success and profitability on the market. In comparison, venture capital is more short term.
Angel networks typically invest in businesses with passionate owners. Like with venture capital, proper assessment and research are required. Many angel investments like to get personally involved with the businesses they are investing in, but it is not a must.
Hiring a Broker
Investing in the stock market is a good alternative to other forms of investment, provided that it is done correctly. You trade stocks or hold on to them for dividend income. The company’s profitability and success dictate the price of their stock.
Stocks trading under £4 are known as penny stocks. Because they are lesser-known, they require more understanding and research. On top of that, the stock market in general is volatile due to global economic and geopolitical conditions.
When put like that, it doesn’t sound like a worthwhile investment opportunity because you always have to stay on top of it. However, by employing the services of vetted investment brokers, you can mitigate the risks that come with investing in stocks.
Working with a broker means you won’t have to invest a lot of time and effort into learning how to trade stocks and researching the latest trends in the industry. But, it’s essential to hire a broker you can trust. By investing in stocks through a broker, you can expect to gain additional income while not having to shift focus from your main entrepreneurial endeavours.
If your business is in its growth-stage years, it already has some vulnerabilities. The integral part of being an entrepreneur is taking risks, but it is key to assess how much risk you can take. Bonds are less-risky investments as they are less volatile.
When it comes to bonds, government bonds are considered to be the safest option. Governments issue bonds on multiple levels in order to raise funds for particular projects. Essentially, by purchasing bonds, you are lending money to the government.
The bond issuer, in return for your investment, promises to pay you back with interest, over a set period of time. For instance, US bonds are backed by the “full faith and credit” of Uncle Sam. With this low-risk investment, you don’t have to worry about losing your money.
With corporate bonds, there’s a bit more risk. The principle is similar, you’re loaning money to a company that is supposed to pay you back with interest. Investors acquire bonds through ETFs and mutual funds, instead of buying them directly.
Investing is a solid strategy that allows you to ensure good financial health for both your business and yourself. Every entrepreneur needs to be familiar with additional assets and income as they can be liquidised when necessary.
Jessie Connor is a passionate writer and researcher from Brisbane, contributor at several business and lifestyle blogs, hooked on yoga and healthy living. She loves to spend her free time travelling, reading and of course – shopping!