Once a small company is making more revenue than is needed to cover everyday expenses, it could be time to invest profits to grow the business. Keeping some spare cash is advisable, especially for new entrepreneurs, as it ensures all financial obligations can be easily met without the need to borrow. However, once these expenses are covered, any excess cash may be put to better use in investments. Whether a small business chooses to build wealth with a real estate portfolio or buy precious metals as a safe long-term investment, excess profits can be used to generate income for further growth.
As the most popular precious metal, gold has a range of uses from manufacturing to decoration. As limited amounts are produced each year, gold is also money and 40% of annual gold production is held in reserves by investors around the world. For small businesses with large amounts of surplus income, gold can be a suitable investment, especially when other assets and currencies are performing poorly. Due to its enduring and recognizable value, gold is easy to buy and sell, either as bullion or in the form of rare coins. Like other assets, the price of gold will fluctuate, but buying bullion is one of the safest investments, and a preferable alternative to holding large amounts of excess cash.
Investing in Securities
Other assets for investment include securities such as stocks or bonds, and for some smaller companies these can be used as an additional source of income. While there is some risk attached to investing in securities, the returns can be much greater than those offered by a bank’s standard interest rates. By only spending what the business can afford to lose and spreading investment across a variety of assets, companies can minimize risks and maximize returns. In addition, investing in certain securities can be tax-advantaged as any income earned as interest is considered in the same way as receipts rather than sales by the IRS.
A diversified commercial property portfolio of office complexes, warehouses and stores can generate a healthy long-term income for a business. To start their portfolio, many small businesses with excess profit choose to invest first in their own premises. As well as providing a long-term return, this removes the need for expensive monthly rental outgoings. While buying a commercial space offers greater financial stability to any business that has fixed space requirements, investing in a larger property can leave room to expand in the future and yield rental income from other businesses in the meantime. Many small businesses rely heavily on a local clientele, and investing in their own property also removes the risk of having to relocate from rented premises.
The first priority for a new business is to make enough profit to comfortably cover its everyday expenses and contingencies. Once costs are covered and excess revenue is generated, longer-term investments can provide greater financial security as well as additional income for growth in the future.