A small business can be financially rewarding if you manage it right. Success isn’t absolute, but there is a higher chance of being profitable for those who know how to diversify their income portfolio. Among others, one of the possibilities to consider is investing in stocks.
While the stock market can be a promising source of additional income stream for your business, it can be risky. The volatility, for instance, makes it difficult to predict price movements, especially for those who lack knowledge.
In this post, we’ll talk about stock investing for small businesses. Can you do it? How can you do so? Read on and find out!
Can a Small Business Invest in Stocks?
Yes, a small business can invest in stocks! It can be one of the best ways to achieve financial freedom, but can also be a nightmare when done without objective thought.
To grow your small business, you should not only be concerned about the money coming in from your core operations. Instead, a strategic initiative is paramount, which is possible by looking for other ways to increase the cash flow. The possibilities for making a profit from your earnings are endless, and one worth considering is putting a portion in stocks.
Investing in stocks is better than keeping your money idle. You will lose the opportunity to realize additional revenues when you do not think of ways to expand your earnings. The return on assets will be lower. Stocks can be a great way to make money fast if you are careful.
The money that you can earn from stock investments can help the business survive. You can mix it with other sources of funds, such as low credit loans from CreditNinja. It is relatively easy to be approved for such a loan, even for small business owners with bad credit ratings. This way, the business can pool the necessary financial resources for whatever it intends to accomplish.
How a Small Business Can Invest in Stocks
Investing in stocks can be overwhelming, especially for new small business owners. Below is a rundown of some of the most important things to do.
- Start By Asking Yourself Why
The first thing you must do is to ask yourself why you are investing the earnings of your small business in stocks. This will help give direction to your strategy and enlightenment if it is indeed the right thing to do.
By asking the why, you will find out if such a strategy is relevant to the objectives of your small business. From time horizon to liquidity needs, consider different factors.
- Know the Rules
The rules can vary depending on the type of business that you have. For some, it is simpler to take the earnings out and invest them personally in stocks. However, others might want to invest through the business itself. This way, you must be familiar with the rules based on the business structure.
- Sole Proprietorships and Partnerships: Under these business structures, the personal assets of owners are protected against debts and obligations. These entities are not encouraged to invest in stocks.
- Limited Liability Company: With its easy establishment, it is a go-to option for startups looking for liability protection. Owners can invest in stocks, but attention is required to prevent mixing personal and business assets.
- Corporation: If your small business is registered as a corporation, then you can use the entity to invest in stocks.
- Know the Different Types of Stocks
Small business owners must research the different types of stocks available, including their pros and cons. Weighing the latter makes it easier to decide which one can have a favorable yield. Below are some of your options:
- Common Stocks: This is the most common form of stock investment, which represents partial ownership of a company. This means that the stock will entitle you to a vote and make you eligible for receiving dividends.
- Preferred Stocks: While you do not have voting rights, you will receive dividend payments with this type of stock investment. When the company goes bankrupt, you will be prioritized over holders of common stocks.
- Find the Right Investment Strategy
Next, consider the best investment strategy. The choice of which can depend on different factors, such as your objective. Here are some of the most common strategies:
- Dollar-Cost Averaging: It is a strategy wherein you are investing equal amounts at regular intervals, regardless of market conditions. This is a good way to minimize risks associated with volatility.
- Value Investing: If you are a small business owner who also happens to be a bargain shopper, this is for you. It refers to buying stocks that look undervalued based on their intrinsic values.
- Growth Investing: Instead of looking for bargains, growth investors are on the hunt for massive potential in terms of future earnings. Most of these investors are looking for small companies expected to expand.
- Momentum Investing: Riding the wave is one of the main principles of momentum investing. It refers to a strategy of buying stocks already experiencing an uptrend, with the hope that they will keep on going in the same direction.
- Seek Help from the Experts
If you already have a basic understanding of how the stock market works and if you are confident in your skills, then you can proceed to open a brokerage account. After this, you can start buying and trading stocks.
However, most small business owners are busy managing their operations. As such, it is best to seek professional help. This is possible by working with a financial advisor if you need guidance. You can also take advantage of robo-advisors.
Small businesses can invest in stocks! However, it requires a thorough approach to maximize profitability. You should know your objective. More so, you must find the right stocks and choose an investment strategy that works best for your needs. If you are unsure of how to proceed, it is best if you can seek the guidance of the experts.