Whether you’re steering a start-up or managing an established enterprise, every penny counts – especially in the current economic climate. Making smart decisions about your cash flow can be a deal breaker.
But it’s not just about cost-cutting; it’s about strategically allocating resources to fuel sustainable growth. And that’s where corporate investing comes into play. This dynamic strategy is gaining momentum. It involves leveraging your business’s profits or surplus cash for potential growth and return rather than immediately converting it into personal income.
Corporate investment can also offer a tax-efficient method to access extra capital from your company when it’s not earmarked for immediate use as income. So, let’s take a closer look…
Types of investment vehicles
Every business has different wants and needs, so your individual circumstances will ultimately determine which investment vehicles are likely to be the best for your company.
You’ll need to consider:
- Level of returns
- How long you want to invest for
- Which sectors you’d like to invest in
- How involved you want to be
And you’ll need to look at your investment options:
- Tangible assets – like gold, oil, or precious metals
- Government and corporate bonds
- Individual stocks
- A trust (pooling your money together with other investors or specific sectors)
- Multiple investment fund options (like bonds, securities, or stocks) can allow you to invest in specialised vehicles like real estate funds
What are the tax considerations?
Corporate tax obligations vary depending on the size of your business, with micro-enterprises only liable for tax on investments once they are ‘realised’ – either partially surrendered or sold.
Small businesses are taxed on their ‘financial investment structure’ like stocks, shares, bonds, or future contracts once they’re ‘realised’. It’s worth noting that commodity investments should be declared on your annual tax returns.
Pros and cons of corporate investment
All forms of investment carry some risk, and it can vary depending on how you choose to invest. That said, there are plenty of advantages…
Advantages
- Diversification of assets – Corporate investing allows businesses to diversify their holdings, spreading risk and potentially leading to higher returns
- Tax efficiency – Properly structured corporate investments can offer tax advantages
- Funding for future growth – Investing profits back into your business can be a strategic move, providing a source of capital for expansion, research and development, or other growth initiatives
- Employee benefits and incentives – Corporate investments can be used to establish employee benefit programs, such as pension plans or stock option programs, which can help talent attraction and retention
Disadvantages
- Risk of losses – You could potentially lose money
- Regulatory changes – Changes in tax laws or regulations governing investments can impact the returns and tax efficiency of corporate investments
- Lack of liquidity – Some investments, particularly illiquid assets like real estate or private equity, may not be easily converted to cash. This lack of liquidity can be problematic if the business requires immediate access to funds
Explore investment opportunities with Nabarro Poole
Figuring out whether corporate investing is for you can be tricky and requires support from people who know a thing or two about investment opportunities for SMEs.
To learn more, get in touch with the Nabarro Poole team today.
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