Investing Basics for Entrepreneurs: Grow Your Wealth Alongside Your Business

Running a business is a full-time job on its own and often more than that. Most business owners don’t think about creating additional passive income based on the profits of their company. However, with strategic investment and a solid strategy, it’s possible to grow your wealth alongside the business.

In this article, we’ll go over some of the ways a small business owner could invest without jeopardising their business as the main source of income. These work regardless of the industry the business is working in and regardless of the amounts, the owner is willing to invest.

Stabilise Before You Scale

It’s important to know when the right time is to scale your profits up and invest in passive income streams. The main concern should be to make sure that the company is stable and taken care of before you’re able to move on to investing.

The rule of thumb is to have enough funds to cover the needs of your business (which includes salaries and tax payments) for 6 to 12 months. Once you’ve set up such a safety net, it may be time to start investing.

When to Reinvest and When to Diversify

 Another concern a business owner should address is when to reinvest the profits from a business back into the company itself and when to diversify and buy stocks, bonds, or cryptocurrencies.

The best times to reinvest back into the business are when a business has a proven market fit when the return on investment for a small business can be proven and calculated, and when a business is growing rapidly.

On the other hand, the time to diversify is when a business is generating consistent profits, when it hits a plateau, or when it’s too exposed to a single market as an income source.

Where to Invest as an Entrepreneur

When choosing where to invest, small business owners deal with the same dilemmas as any other investors. The goal of their investment is to provide profit but also to be diversified enough to mitigate risks. That means that the investments should be spread across all the options we’ll mention.

Low-fee index Funds and ETFs

Low-fee index funds follow and track the value of major index funds, allowing investors to diversify among these companies automatically. The major advantage for a small-business investor is that they don’t need to be engaged with the investment on a day-to-day basis, and they can just follow the growth on a regular basis.

Stocks and Shares ISA

An ISA account is a flexible account made for tax-efficient saving and pension planning. It’s mostly used by self-employed individuals and entrepreneurs. The main advantage of using this type of account is that all the gains are tax-free. There’s an annual contribution limit – at this point set at £20,000. Unlike ordinary pensions, the investors using ISA can have access to all of their assets at all times and withdraw them when needed. 

 Cryptocurrencies

Cryptocurrencies have become a part of mainstream finance, and both small and large investors widely accept them. It’s easy enough for a small business owner to use DeFi exchanges and get into the crypto market. The profits are higher than those of the other investments we mentioned, and it opens the door to innovative new technologies.

 Real Estate and property

Real estate investing allows the business owner to have a tangible asset as a result of their investment efforts. This asset also appreciates over time and provides certain tax benefits depending on its value. It’s also a good way to diversify from stocks and bonds. The downside is that it mostly works if you have a lump sum to invest.

A Retirement Plan

Many business owners consider their business their retirement plan. It’s a risky way to run a business, as it’s not passive income and requires work the owner may not be able to do as they get older, and there’s no guarantee the business will be as successful as time goes by.

That’s why it may help to use the passive income as a retirement fund. It also makes sense to do so for the tax benefits that are awarded to retirement funds.

To Sum Up

Small business owners should invest a portion of their profits into passive income sources. This is only an option if a business itself is working well and if the owner has a nice cushion to fall back on if needed. It’s also possible to reinvest in the business itself if the conditions are right.

The rest of the profits should be diversified between real estate, cryptocurrencies, ETFs, and pension funds. All of these offer a steady income, but some are more risky than others. They also differ in terms of taxation, which is an important thing to consider as the profits increase.