Should SMEs Invest In Stocks And Shares?

Contributed post

The stock market is frequented by massive corporations who make a killing. Usually, small business owners leave the big game to the Big Three and feed on scraps. The thought of mixing it with the professionals and losing a heap of money isn’t appealing.

But, the truth is that stocks and shares are just as lucrative for SMEs as they are Apple, Microsoft and Berkshire Hathaway. How? Well, it’s apparent that you can take a proportion of the firm’s wealth and leverage it against the market to make money. On the flip side, you can use the exchange to defend against potential pitfalls.

Below are four more reasons to invest.

Cash Deductibles

Banks reject 100,000 SME applications each year according to the British Business Bank. The reason is that lenders require the firm to have the liquidity to cover the costs in case of a disaster. Because small companies need the money to survive, they keep the cash on hand, yet that doesn’t mean it’s safe. You can store the money in an account, but it’s only ATOL protected for up to £75,000. Any amount that is greater will disappear into the ether. A smart alternative is to invest in ‘steady’ bonds to keep the money safe and make a profit.

Revenue Streams

When the customers aren’t splashing the cash, you can’t say ‘that’s fine; come back next time!’ The business has to find a way to cover its expenses and make money to survive or else it will slip into the red. Sadly, companies can’t make consumers spend money, so you need a contingency plan. Although the market is slipping currently, it’s bouncing back, plus it’s historically strong. Investing in stocks and share, then, is a solid way to turnover cash without having to convince customers to be less thrifty. Also, it’s a cost-cutting measure as there’s no need to invest in marketing, etc.

Hedging Bets

In 2008, the housing market crashed and the world delved into a recession. The Big Short detailed how hedge fund managers made money from ‘shorting’ the stock, but that’s not the only play. Disasters tend to be localised to industries, which means other sectors carry on regardless. As a result, you can funnel funds into Qualcomm stock while the real estate industry tanks, metaphorically speaking. Property is on the brink at the moment, yet telecommunications has never been as lucrative. That is one example but there are hundreds if not thousands in the market.

Speculate To Accumulate

Sometimes, and don’t get your hopes up, SMEs make too much money. Hallelujah and praise the Lord for miracles do happen! While you are patting yourself on the back, think about the money. It could go towards research and development, while the rest can reduce debts. But, a small portion should go into securities on the stock market. As the money is a bonus, there is no real danger when you speculate to accumulate, but the rewards could be massive.

Are you a small business owner? Are you now thinking about investing in stocks and shares?

 

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