Image Text:

FOOD FOR THOUGHT: Investing

TODAY, MORE and more businesses are engaged in investing. It can be a practical way to make use of your profits and grow your assets while minimising what you have to pay in tax. It can help to give your business security for the future and stability in the present, making it a more attractive prospect for investors in itself. If you’re interest in doing this, what do you need to know and where should you begin?

Start with a plan

All successful investors, whether trading individually or through businesses, start by working out what their aims and priorities are and developing a strategy accordingly. Investing as a business should never be focused primarily on short term profit as this undercuts the advantages it has to offer.

Longer term investments can be used to defer some of your tax burden and increase the real value attached to your company. This means that you should concentrate on slow-ripening investments that will pay off well in the long term, but you will still need to balance your portfolio by incorporating different investment types.

Deciding at the outset how much risk you are prepared to tolerate will help you to maintain a steady policy going forward and keep you from making unwise decisions on impulse.

Think about tax

One of the major reasons for investing your profits is that it enables you to defer or reduce the overall amount of tax you have to pay. Essentially, there are four things you can do with your profits: pay them out as dividends (sensible until you hit the Income Tax threshold); spend them on materials and equipment (useful up to a point but not beyond that); leave them sitting in the bank where it’s probable that they will lose value due to inflation; or invest them. The latter is the most effective way to make them work for you.

Pension schemes

One of the simplest ways to invest your profits is by putting them into pension schemes. This permanently reduces the amount of tax payable at the same time as giving you and your employees a secure future and increasing employee loyalty. it’s simple to set up a workplace pension and there’s plenty of advice available from the government on how to manage it.

Stocks

If you choose to invest in stocks, you can improve your business opportunities by buying into companies in your distribution or supply chains. This can strengthen your networks and give you improved access to information as well as an improved ability to build long-term partnerships. You can even use it as a step towards selling your products or services to new demographics or in new markets, even reaching out overseas without having to go to the trouble of setting up a franchise.

Hedge your foreign transactions

If you already have overseas branches or you often work with overseas partners, you’ll find that losing money on exchange rates can be a real problem. This is where forex trading becomes a practical solution because you can use it to hedge against possible losses of this sort, so that whichever way the currency moves, this offset means that you will neither gain nor lose.

If you become familiar with this form of trading and like the idea of using it for gain, forex scalping is not a difficult technique to master, but you should be wary of high leverage and set sensible limits so you don’t risk losing more than you can afford.

Using a separate company

Some people set up separate companies specifically in order to invest money from their main companies, instead of investing it directly. Why is this and could it be right for you? Using a separate company provides legal separation so that any complications with one company will not affect the other.

It also means that you won’t be obliged to redefine what constitutes the core trading activity of your main company, and the regulation of your trading company will be easier to manage because you can keep its structure really simple.

You can simply loan money to the trading company from your main company, thus moving your profits so that you won’t be liable for tax on them until they’re returned. The trading company, meanwhile, will only have to pay tax when it in turn, makes a profit on that profit.

Investing your business profits is much simpler than it might seem and offers multiple advantages. As you find your feet, you’ll find more and more ways to make it work for you.

Read every story in our hardcopy newspaper for free by downloading the app.