Running a business isn’t easy, especially when capital is low. Unfortunately, you can’t run a business on skill and determination alone. If you’re feeling a little shorthanded in the financial area for your business, it might be time to consider investing. Here are a few tips that can get the average small business owner started in the investing game.
1. Start with Penny Stocks
A penny stock is basically a common stock sold for less than a dollar on the market. It’s a highly volatile investment, but worth so little that it makes a great place to start for new investors. As a small business owner, you can get started trading penny stocks to learn the market and develop more skills as an investor. Once you’ve gotten the hang of things, you may choose to continue experimenting with penny stocks or move on to different investments.
2. Align Investments with Business Goals
As a SBO, there are many entities to consider with your business before making any kind of speculation. To begin with, you’ll want to take a closer look at your business goals, business plan, debt load, and financing. Investing should be a way to enhance income, not supplement it.
In other words, taking money needed for another part of your business in order to multiply your holdings isn’t smart. If the investment turns sour, you’ve lost money on both the investment and your business, which will make it difficult to recover, particularly if cash flow is low. Instead, keep your business’s best interests in mind when investing. Use surplus profits to make down payments on investments, and always remember that investing should not be treated like gambling.
3. Diversify Investments
As a general rule, try not to put all of your eggs in the same basket. That way, if one of your stocks devalues, you still have a chance to make a profit with one of the others. This reduces your overall risk as an investor and helps you to preserve your business interests.
4. Consider Mutual Funds
When making savvy investments, there’s a level of risk and return that must be considered, and there should always be a balance. If you’re just starting out, the lower the risk, the better – which makes investing in a mutual fund a great place to start.
In large mutual funds, hundreds of stocks are combined in one place, and a fund manager puts money in the fund to increase the growth rate. The risk of losing money in such an investment is extremely low, making it a worthwhile opportunity. With your stocks slowly growing, you can better understand the ups and downs of the market and prepare yourself for bigger ventures.
5. Keep Time on Your Side
Investing is in no way a get rich quick scheme, even though many amateur investors treat it that way. It’s a long-term game where the best returns come to those who wait. Even when things look bad in the market, it’s not always a sign that you should pull your money. After a bear market, the resulting returns tend to be much higher, but only for those who wait for the right time to sell. Trying to pull your investments out when the market is bad and put them back in when it’s good will cause you to miss some of the best returns.
6. Avoid Leverage
It’s true that leverages can increase your profits, but it’s important to remember that it can go the other way as well. It will amplify your losses just as much as your gains, and that’s a little too much to gamble when your business is at stake. If things go bad, the broker could actually issue a margin call, which would require the investor to put up extra cash to make up for the deficit.
7. Minimize Taxes and Fees
Unfortunately, trading and selling within a market setting isn’t free. There are often hidden fees and taxes you need to consider. These charges can amount to as much as 30 percent of your profits if you don’t get them under control from the beginning, so learn how to minimize your costs. Before you make an investment, look at the fees and taxes involved to determine if the fees are worth the risk.
This is not something that should be taken lightly. You’re putting a lot on the line when you go into the market for your small business, and a series of wrong moves can get you in so deep, it’ll be hard to recover. Enter the market carefully and cover all your bases to ensure you come out victorious.
Investment Concept Photo via Shutterstock
Aira Bongco
I think the safest way to start is through mutual funds. As long as you keep your money there for a certain period of time, then it is easier to make some decent profits. It is dangerous if you invest in a shorter time span but it gets easier when you invest for a longer period of time.
Great posts Larry!
It is much wiser to start with MF. Understanding how the game works and not speeding up shotgun investments would pay off in the future. Patience, understanding the investment venture you’re trying to enter and utilizing your resources wisely are the key significant factors that should be considered.
Thanks,
Tom
Charles Leworthy
Great tips, Larry. When investing, time is of the essence – there is no such thing as an overnight success. I also agree that avoiding leverage is a good call. If you do this because you’re shorthanded in the financial area for your business, it doesn’t seem wise to “gamble”. I would also suggest using indexes – they’ve proven to be more efficient that active management.
Many entrepreneurs fund their businesses themselves. They use savings or personal debt (such as a second mortgage or credit cards). Alternatively, they sell assets to generate cash (e.g., a second home or a boat) for the business.
There are a number of groups that will allow you to pitch your ideas to investors via the internet. Typically, when this type of funding is successful, multiple investors will contribute funds to the idea. Be aware that there are restrictions on how cloud funders can operate.
Tim Yaotome
Since you mentioned that one way that business owners can get more money is through investing in common stocks that are sold for less than a dollar, my tip for them is to read more about the current state of the financial market, such as equilibrium exchange rates. Knowing this information can help one make a sound judgment on whether to invest in this company or not. Thanks for the awesome article on how to start investing while being a small business owner at the same time.
Hey, I do agree with your seven point formula. However I am wishing to add few points which can give you more returns. Post pandemic, there are few sectors in which few small businesses need investment to grow. Their concept is quite well. On the other hand, some business tycoons eager to make investment in profitable sectors like agriculture, cannabis, alternative funds, hemp, medical and real estate. But connecting them was a major issue. However, some innovative platforms like Investorhotseat strive to connect them. This is holding Investor Pitch Competition Event on January 28, 2021, for which registration has already been started on Eventbrite.