When it comes to the relationship between businesses and investments, people typically think of businesses trying to get financial institutions to invest in them. Though this does happen frequently, businesses also look for ways to invest their own money to help themselves grow.
Gaining a deeper perspective on the typical ways that small businesses invest their money can give one a clearer understanding of small businesses and how they function.
Here are the most common types of investments for small businesses.
Stocks can be described as small pieces of ownership that individuals and organizations can purchase from companies. These stocks can change in value depending on the success of the business and other factors such as the market’s climate at any given time.
Much like many individuals who invest their personal finances, many small businesses choose to invest extra earnings in stocks. Stocks allow a small business’s cash assets to appreciate in value over time rather than depreciate. This being the case, it makes sense that this is one of the most common ways that small businesses choose to invest extra earnings and flex their finance skills.
However, not all stocks are safe bets — especially in the short term. Small businesses that invest funds in the stock market must typically be ready to wait between five to ten years before cashing out.
In addition, stocks such as index funds and shares of Fortune 500 companies are typically viewed as safer investments than stocks of lesser-known companies, even though they may not have the same potential to skyrocket like some smaller businesses’ stocks.
Bonds can be described as a type of loan with fixed terms. When one invests in a bond, they invest a fixed amount of money for a fixed amount of time which will result in them receiving a fixed amount of interest. While these investments are safer than investing in stocks, they typically yield fewer earnings than them.
Many small businesses who want to safely invest extra cash turn to bonds. This is because bonds — especially government bonds — have close to no chance of depreciating in value. As such, small business owners can rest assured that they won’t lose the money that they invest, even if they aren’t getting the highest returns.
Investing in Tools and Machinery
When it comes to growing a small business, there are few tactics as tried and true as investing back in the business. By putting earnings towards new tools and machines, one has the chance to grow and expand in new ways.
For example, a t-shirt printing business may use its extra earnings to purchase an embroidery machine. Now, the business is able to offer a new service and attract a new set of clientele. Eventually, the profits gleaned from the embroidery machine will surpass its cost, thereby appreciating the invested money’s value.
Investing back in tools and machinery can take a number of different forms. Depending on the particular business and industry that one is in, there are endless options when it comes to obtaining new gear that has the potential to help one’s business grow.
Investing in Marketing and an Online Platform
When it comes to business, the days of one’s business blowing up by word of mouth are now becoming rarer and rarer. In today’s fast-paced and largely digital world, it’s vital for small businesses looking to succeed to effectively market themselves and provide consumers with an online platform to shop for products and services.
To put investing in marketing and an online platform into perspective, it can help to look at an example. Imagine a sandal company spends $2,000 on marketing and an online store. Instead of making their usual sales of $500, they instead make $1,000. This shows that the money that they invested in marketing and an online platform will result in more sales, thereby appreciating the value of the initial investment.
When it comes to marketing, there are a number of ways that small businesses can go about getting the word out. From engaging in effective SEO practices to crafting funny YouTube video ads, small businesses have the opportunity to tailor marketing efforts to their values.
Small Businesses Should Let Extra Cash Work for Them
Though being a small business owner isn’t always easy, there are ways to make it less of a challenge. One of the most effective ways to lessen the blow of obstacles such as inflation and slow months is by investing extra cash in a variety of places.
By investing profits wisely, small businesses can allow their extra cash to appreciate over time and, in turn, use the returns to grow the business in new and exciting ways.