July 26, 2022
What is Corporate Investing, and How Can It Benefit Your High-End Business?
In a time where the inflation rate is higher than ever and set to breach 10% by the end of the year, it is becoming harder and harder for large businesses to justify leaving profits in bank accounts. As time goes on, the value of cash is whittled away, reducing a business’ growth and spending power passively. The solution for many businesses can be found in the form of corporate investing.
Corporate investing describes the allocation of company profits or cash to investments, whether by active management of stocks and shares or through investment in programmes, pools, and bonds. But why exactly is the discipline advantageous to businesses, and preferable to simply saving money?
If you’re wondering what corporate investing is and how it can benefit your high-end business, consider seeking MBO help from experts in corporate finance. They can guide you through management buyouts, a strategic financial move that could play a pivotal role in the growth and success of your high-end enterprise.
The Advantages of Corporate Investing
As touched upon, the rising rate of inflation poses a threat to medium- and long-term savings, as the value of money depreciates over time. For the business saving up for growth or expansion, this ‘hidden cost’ can be devastating. Corporate investing enables businesses to guarantee their own interest, in the form of returns from positive market movement.
There is an additional benefit, though – and one which can have a much more meaningful impact on short-term and market-based returns. Corporate investments are subject to Corporation Tax, meaning that any returns or ‘interest’ are taxed. In 2010, the tax rate was 28%; today, it is 19%. This means now is a better time than ever to invest.
What Types of Investing to Consider?
Investment is a broad topic, and there are numerous ways a business can approach its investment portfolio.
Traditional investment would involve the purchasing of shares on the stock market, with a view to generating returns from business success in key markets. Third-party brokers are a good option for outsourcing decision-making here and can also offer corporate investment packages that guarantee a certain level of security.
There are also investment pools, where a business can volunteer money alongside other businesses in return for equity in a new start-up. These are vital ways for younger businesses to get funding and can see inflation-beating returns in the right circumstances.
Corporate investing can be a powerful route to profit protection, and even beat inflation if done shrewdly. But there are limitations, that must be understood. For one, investments might pose difficulties when it comes to cash flow. Investing your profits can result in negative cash flow, which could reflect poorly on your business despite investment gains. In these scenarios, asset-based lending can help you access additional funding for investment without impacting cash flow.
The principal limitation to corporate investing, though, relates to the risk involved. No matter the vessel for investment, there is a risk inherent to any investment you make. Market movements could render a currency worthless or bring a business to its knees – wiping out the value of your investment. This is why a diverse portfolio is a shrewd move to make, to mitigate any losses.