Corporate Finance: How to Invest Your Business’ Profits
About 40 percent of small businesses in the U.S. are profitable.
If your business is turning a profit, thumbs up! Whether the annual profit is $10,000 or $1 million, you’ve done an excellent job.
However, what you do with these profits will determine the long-term performance of your company. Yet, most small business owners don’t have an active plan for their profits. They’re happy to let the money sit and accumulate in bank accounts.
Don’t take the same path.
In this article, we’re teaching you about corporate finance. Read on to learn how to invest your company’s profits.
Reinvest Your Profits in Your Company
This is by far the most popular way business owners invest their profits. After all, what better way to spend the money than plow it back into something that has a proven business model?
Reinvesting profits into the company isn’t that simple, though. Business owners must find the right areas into which to pump the funds. You want to invest in areas that have the highest potential for a good return.
Depending on the nature of your business, this could mean expanding your workforce, investing in research and development, opening a shop in a new location, upgrading your technology, or even increasing your marketing budget.
Invest in Other Businesses
Almost every other day, there’s news of a large company investing millions of dollars in a startup. We’ve seen some of these startups blow up into multi-billion dollar companies, earning the early investors a big fortune.
These kinds of investments aren’t a preserve of the large corporations like Alphabet and Microsoft. Even small companies can buy stakes in other companies.
Investing in other businesses is a lot like buying shares in the stock market. The key is to buy shares in a company with growth potential. An increase in share price is the only way your investment is going to gain value.
However, investing in small, emerging startups requires a lot more research and due diligence. You may even need to find a corporate finance advisory service to help you assess the market and find good equity investing opportunities.
If your profits are on the higher side, investing in real estate is a smart move. Real estate assets typically appreciate in value over several years, making it an ideal opportunity for companies that want to put their profits in low-risk markets.
One way to invest in real estate is to purchase the commercial space that will become your premises – if you’re leasing right now. With an owned space, you won’t worry about paying the rent and you have more wiggle room when it comes to modifying the space. On top of that, the value of the property will likely keep increasing, adding to your company’s net worth.
Understand Corporate Finance and Investing
Understanding corporate finance is key to growing your company from a small enterprise into a large corporation. You’ll be in a better position to make sound financial decisions, including how and where to invest company profits.
Keep tabs on our blog for more on how to make corporate investments.