Though investing has a reputation for being risky, it is hardly more financially dangerous than starting a business. Plus, investment requires relatively little time compared to the potential for profits. Still, there is a right way and a wrong way to mix investing and business ownership; this guide will help you learn the difference.
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First, Normalize Your Biz’s Cash Flow
Before you can devote even some of your attention to other money-making endeavors, your business should be somewhat self-sustaining ― which means you should wait a few years after starting your business to better understand the ebb and flow of your sales. Then, you should strive to stabilize your cash flow, making your business as predictable as possible while you learn the basics of investing. There are several methods for managing your cash flow:
- Collecting your receivables more regularly. You could become more diligent about following up with clients, or you could use a service like accounts receivable financing or factoring to regulate your incoming owed cash.
- Tightening clients’ credit requirements. You should start being stricter with credit terms and limits, so you can be certain that clients using credit will soon pay you what’s due.
- Increasing sales and providing discounts. The more sales you have, the more cash you have coming in. Sales events and discounts are a good way to bring back past clients and encourage new ones to make purchases.
Once your small business’s income is relatively steady, you can begin learning the ins and outs of investment.
Align Your Investments With Your Biz’s Goals
One smart strategy for investing as a small-business owner is to use your investments to enhance your small business’s success. Therefore, as you begin making investment plans, you should revisit your business plan, goals, and other aspects of your business that might impact where you put your money, like debts and financing. Then, you can dedicate your money to investments that will help your business succeed.
It is important to mention that you should never take money from your business to use for alternative investments. If you do so and an investment goes bad, your business will suffer. The success of your business should always come first.
Start With Small Stocks
If you aren’t familiar with the stock market ― and few small-business owners are ― you should consider cutting your investment teeth on penny stocks. Sold for less than a $5 each, penny stocks are worth so little that their volatility is hardly impactful, but you can use these low-value stocks to learn market patterns before moving onto riskier investments. You can trade penny stocks through nearly any online broker.
Learn About Mutual Funds
After you have passed the penny stock test, you can start learning about mutual funds. A mutual fund is an investment program created by combining several stocks into one package. Typically, mutual funds are diversified to reduce the likely risk incurred in investing. Ultimately, there is a low risk of losing money from a mutual fund, which makes them ideal for beginner investors like you. As with penny stocks, you can watch your mutual funds’ growth and the market’s change without worrying about losing all your money.
Various fund managers will create their own mutual funds, so you will have different fund options depending on which broker you use. Many funds are created by lumping together certain types of stocks, so you can spend some time learning about your fund options before investing.
Never Leverage
Leveraged investing is a method by which some investors manage to increase their profits by using borrowed money. There are several ways to leverage your investments, but if you are smart, you won’t bother. While leveraging does potentially earn you more money, it also amplifies your losses, which means you could end up owing more money than you started with, putting your personal finances and your business at risk.
Be Patient With Your Investments
Hastiness is an investor’s greatest enemy. As with building a business, investments require time to grow big and profitable. Especially while you learn the ropes of investing, you should avoid thinking of investing as a get-rich-quick scheme and start thinking of it as an interesting, lucrative long game.
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Alexa Mason is the blogger behind Single Moms Income, a personal finance freelance writer, and an online entrepreneur. Come hang out with her on Facebook and Pinterest.
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