In economics, investment refers to expenditure aimed at increasing the wealth of a person or company over the long term. In business, investment is used to improve productivity, save time or increase capital. In this article, our experts have compiled the best strategies to implement to increase your investment.
Controlling your budget
It’s important not to live beyond your means, a rule of common sense often ignored by some. This applies to individuals as well as legal entities such as small and medium-sized businesses. To avoid falling into this trap, it is advisable to have an overall view of your fixed expenses and income. This will help you determine your company’s savings capacity.
Understanding the importance of your working capital and cash reserves, as well as the funds available for investment, is crucial to optimizing the growth of your assets and securing your future. Take the opportunity to review your business plan, taking into account your long-term vision for your company and your personal future.
Define savings and investment objectives
Structuring the life of your SME over the medium and long term involves defining your objectives. These may relate to building assets, expanding the company’s activities or diversifying its business. However, achieving them requires rigorous planning to ensure their optimal development.
Precautionary savings
Before you invest in your company or in the financial and real estate markets, it’s important to build up a solid base of savings to cover unforeseen events and setbacks. To this end, we recommend that you set aside at least 2 months’ fixed expenses as precautionary savings. Once you’ve built up this base, you can invest the rest of your savings.
Investing in the future of SMEs
It’s important to invest wisely for the future of your business. Business owners tend to invest a large portion of their funds in their business, but it’s essential to find a balance between these investments and those outside the business, such as savings, TFSAs, non-registered accounts and life insurance plans. If you’re unsure about the balance of your investments, professionals such as financial advisors, wealth managers, accountants and tax lawyers can help you develop a plan to maximize your personal savings and investments while ensuring your business has the funds it needs.
It’s a good idea to think about investing money to grow your capital. This strategy is commonly used by professionals such as lawyers and doctors, to manage their wealth and plan their retirement. However, these investment strategies can also be beneficial for owners of other types of business. It’s possible to invest in self-directed or professionally managed portfolios, which allow you to buy mutual funds, bonds, ETFs, stocks, index funds and other types of investments.
Diversifying your investment
If you have large sums to invest and plan to exceed the $50,000 limit for the small business investment tax reduction, you may wish to consider company-owned permanent life insurance. These policies offer death benefits, as well as an investment component that allows funds to grow tax-free, up to a maximum of $50,000. The funds can be used by your company to secure a future loan, to take out a loan through a policy loan, or to cash in by eventually surrendering the insurance policy.
Buying real estate is another option for diversifying your investments. Whether you’re buying a commercial building to house your business, a rental property or an investment property, real estate can be a great way to grow your wealth. However, these investments can be costly and limit your small business diversification to just two sectors of activity. What’s more, you may need to finance the purchase of the property you covet, and go into debt. Real estate investments can have different tax implications depending on their nature. If you buy a factory to run your business, it will be considered a general small business expense. On the other hand, the purchase of a rental property will be included in your $50,000 limit for passive investments.
Some business owners decide to create a separate holding company for their real estate investments to protect themselves against the risks associated with real estate ownership, such as debts and judgments related to injuries sustained on a property. You may wish to consider this option, which offers greater security for your investment.
Ask an advisor
When considering savings and investment strategies, it’s important to know that the best approaches often involve a combination of different methods. These approaches are designed to maximize your returns while ensuring your security, taking into account your risk tolerance and aligning your personal and professional financial goals with your business situation. To help you analyze your options and develop a plan tailored to your needs, we recommend calling on experts such as our experienced financial advisors, financial planners and professional tax specialists. Our experts can help you identify opportunities and make the right investments for you and your business.
Conclusion
In short, this article presents savings and investment strategies for SMEs that aim to maximize returns while ensuring the company’s long-term financial security. It emphasizes the importance of budget control, setting savings and investment goals, building precautionary savings and investing wisely in the company’s future. These strategies can help business owners manage their wealth, plan for retirement and ensure the growth of their business. Finally, it is advisable to consult financial advisors to develop a plan tailored to your needs and align your personal and professional financial objectives.
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