7 Investment Tips for Small Business Owners

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Handling any business is no easy feat.

Building a business from scratch and maintaining it to be productive needs effort, determination, and perseverance. But what will happen if your capital is low? Since businesses are essentially financial in nature, you may wonder how you can handle your business with low capital.

But don’t fret just yet, you have options on how to scale your business using investments. Read below for 7 investment tips you can follow to scale your business! 

1. Start With Penny Stocks

Investing in penny stocks is seen to be the most logical and common pathway beginner investors and business owners take. As the name suggests, penny stocks are trading low share prices of less than $5. But do not let that cheap price fool youpenny stocks are relatively unpredictable because of their extremely low price and volatile price movements. So, the question is, are penny stocks investments for you? 

Penny stocks are unpredictable and have low liquidity—which means even small transactions can make the stock price swing high. But you can certainly be successful at penny stocks trading so long as you follow these steps below: 

  • Only trade if you have funds you can afford to lose. Penny stock trading is extremely unpredictable, so you might lose your funds in the process. Better trade with money you can afford to lose than go the other way around.
  • Get expert’s guidance. Following their guidance will be beneficial for you as you can avoid the same mistakes they did when they are still starting on penny stock trading. Choose a mentor or a coach that you know has the most knowledge about penny stocks. 
  • Start your penny stock trading journey by learning paper trading. This method involves no money and with no risk as you only need a pen and paper to buy and sell stocks and to keep track of imaginary trades in real stocks. 
  • Pick an industry you would like to focus on. Focusing on hot and in-demand industries is certainly not the best industry you can focus on as these markets are typically crowded and stocks are severely overpriced. It is better for you to pick the industry you know very well and are passionate about. 

2. Align Investments With Business Goals

Investments are necessary tools to make your business stay afloat. But many business owners and managers forget that their businesses need to be aligned with their investments to help their businesses stay competitive and productive in the market.

Aligning your investments with your business goals can be started by asking yourself why. “Why are you making these investments?” “Why focus on a particular way or the other?” “Why choose this investment deal over the other?” Asking yourself these questions will eventually reveal the purpose of why you are making these investments. 

Another way of aligning your business goals to your investments is by crafting a purpose statement or a mission statement. Crafting a purpose statement should not just focus on profit gain but also about what really matters for you as a business owner and your company itself. Maybe you want your stakeholders to have a better life because of your services or products, or maybe you want to practice morally upright corporate ethics. How you will craft your purpose statement is entirely your decision with an actual and realistic “purpose” in it.

3. Diversify Investments

Investing is a good thing when it comes to business. But investments are not without risks. One way of minimizing investment risks is investment diversification. Investment diversification, from the root word ‘diverse’, is a method of investing in different financial units and industries to further minimize risks associated with investments.

Diversification does not nullify investment-related risks, it only minimizes them. Financial experts agree that while investment diversification does not completely eradicate risks, it is the most important thing to do to reach your long-term financial goals all while reducing risks. But there are two types of risk you should bear in mind.

Market risk is the type of risk your technique can overcome. Market risks are isolated within a certain type of business or industry, so you can still freely invest within other industries that are not affected. While diversification reduces market risks, there is a certain type of investment risk that you will never overcome with investment diversification, and that is called systematic risk. Systematic risk involves the whole market and affects all industries and markets. This type of risk is commonly caused by inflation, war, political instability, and several other socioeconomic issues. This risk must be accepted by investors as this will never be dodged using diversification techniques. 

4. Consider Mutual Funds

Mutual funds are essentially a lifesaver for many businesses but it needs your attention and responsibility. Here are ways on how to pick a good mutual fund: 

  • Identify your goals and objectives. This is a fairly common thing to do while investing in any type of investment. Doing this allows you to get the best of the benefits from your mutual funds while perfectly aligned with your goals in mind. 
  • Consider your risk tolerance. Can you bear the risks associated with your mutual funds? If yes, you are on the right track. If not, balance your desire for returns and your risk tolerance. 
  • Get to know the style and fund type. Getting to know this is associated with your goals and objectives as certain fund types do have different purposes for it to cater to. Research and align your goals with a particular type of fund. 

5. Avoid Leverage

Almost all businesses, regardless of the industry, will go through a phase where they will actually need a loan to upscale their business. This is especially true to small business owners as loans are especially attractive because banks do not care about where the money will go. Avoiding leverage can be a good thing to avoid, and here’s why: 

  • Loans stunt a business’s growth potential. Your business will never have the resources to finance operations and try to upscale its growth if your business is busy paying back loan after loan.
  • It makes you lose assets. For instance, your company has a secured loan from the bank, the bank can repossess assets and may make you liable for loan repayment. 

6. Minimize Taxes and Fees

Taxes can be downright confusing and difficult to understand. This is the reason why many business owners, particularly small business owners, overpay their taxes because they missed out on deductions or several savings-related taxations. Aiming to minimize your fees and taxes can be complex, but with these methods and tips, you can minimize them to your advantage: 

  • Keep an eye on your AGI. AGI or Adjusted Gross Income is your overall annual profit after accounting applicable taxation fees. Keeping an eye will help you avoid taxation requirements and will eventually help reduce your annual tax deduction fees.
  • Using tax-free ways to earn money. There are tax-free benefits you can take advantage of such as fringe benefits from medical coverages and retirement plans. Consider talking to your in-house accountant for other ways to go tax-free.

7. Invest In Real Estate

Real estate investments are one of the most lucrative and reliable investments there are. So, as a business owner trying to diversify your investments, would it be good for you to invest in real estate as well? Only you can answer the question yourself, but here are questions for you to ask yourself whether real estate is for you: 

  1. Do you have an interest in real estate? If yes, then it might be a good start. Personal interest will give you an edge in this investment as you will enjoy what you do and you will certainly be more productive. 
  2. Are you looking for ways to get an immediate profit? Real estate can give you immediate profit firstly by buying a property or land and reselling it at your own price. In simple words, you can get cash for land
  3. Looking for a steady stream of income? Consider real estate rentals. Get or build a property, find tenants, and get a steady stream of income monthly (or until your tenants move out). 
  4. How much time and effort can you allot? Real estate management requires a hefty amount of your time and efforts. If you think you can do well, go on and invest in real estate. 

The Takeaway

Investments are great financial tools at your disposal to turn your business from the bottom, all the way to the top. But always remember that every investment has its own set of risks and benefits. It is up to you to weigh in the risk and benefits and balance them to get the results you need but do not forget to consult with your accountant and other financial experts for this matter. Overall, low business capital can be augmented and financed using investment methods that will help you gain profit and maintain income all throughout. 

Your business’ future and potential are in your hands, business owner. Leverage your investments and you will be able to get the results and the profit you are dreaming for your business. 

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