Looking to grow your franchise? Investing outside of your business could ultimately help you make your franchise even bigger and better. Here are some of the most common ways to invest, depending on your attitude to risk, appetite for returns and business goals.
If you’ve chosen to start your own business or franchise, you’ve already taken the plunge and invested your money. And hopefully, by now, you should be seeing the rewards of potentially your first ever investment. However, you could be making your profits work even harder by investing them in other ways.
Lots of business owners’ first instincts are to reinvest their funds straight into their franchise or business. But investing outside your business could allow you to reinvest more significantly. Got dreams of becoming a multi-unit franchisee, or retiring early? Investment could be one way to make them come true.
Is investing risky?
Before we explain anything else, it’s important to make one thing clear. While there are ways to invest that minimise your risk and give you the best possible chance of positive returns, no investment is ever risk-free. Even the most cautious investments can go wrong and any money you invest could be lost forever. Investing can also mean tying your money up for a number of years, sometimes with repercussions or even penalties for early access.
But that doesn’t mean investing is a silly gamble for business owners. Careful, considered investment can outperform notoriously poor savings interest rates and allow you to reinvest or enjoy a larger sum. As long as you don’t invest more than you can afford to lose and keep a healthy chunk of your profits where you can access them for cash flow, you could achieve a very positive outcome.
Why is investing a good business strategy?
Investing is a great way to potentially get more out of the profits you’ve worked so hard for. The vast majority of savings accounts have very poor interest rates, meaning you’re unlikely to make any significant gains with your money sitting in there. Even ISAs, which may ask you to tie your money up for a number of years, rarely offer impressive interest rates.
If you’re willing to delay enjoying your profits a little, investment could be the way to go. By investing in various asset classes, from Government bonds to company shares, you could grow your original sum as the value of your investment increases.
For example, according to investment guru Dave Ramsey, the average annual return for those who invested in an S&P 500 mutual fund (a kind of tracker that follows the progress of the largest, most stable companies on the NY stock exchange) is an impressive 12% for all the years since 1923. If you invest just £1,000, you earn £120 in 12 months, without doing much at all.
Again, there’s never any guarantee that your investment will rise. In unprecedented circumstances like the 2008 recession and the Covid-19 pandemic, there’s every chance your investment will drop. However, if you’ve got the time and nerve to wait out a tricky market, you could also recoup your losses later down the line.
>> Read more:
- 4 Reasons Why Investing in a Franchise Is Worth It
- Thinking About Investing in a Franchise? Here's What You Should Keep Top of Mind
- How to Avoid Going Broke by Investing in a Franchise
- To Invest in a Franchise or Start Your Own Business, That Is The Question.
- 10 Pros and Cons of Investing in an Established Franchise
- Ready to Invest in Your Future? 5 Reasons Why Investing in a Franchise Makes Solid Business Sense
Reasons for franchisees to invest
Before you invest, it’s important to understand what you’re aiming to get out of it. Here are some common reasons for investing:
- For retirement - Usually, those investing for retirement will choose low-risk, slower growing investment vehicles to minimise losses and maximise their chance of building a comfortable pot to live on.
- For reinvestment - Keen to use any gains to help grow your franchise or independent business? You could invest over a shorter period, but may have to opt for higher risk options to get your desired returns.
- To make money work harder - If you simply don’t want to see your money sitting in your account, investing is a good option. You can choose to take on more risk or keep it as conservative as you like.
- For financial security - The last year has shown us that no business is truly immune to losing it all. Investing can allow you to keep smaller portions of your money in a number of areas, potentially protecting it against market fluctuations.
>> Read more:
Common ways for business owners to invest
If you’re new to investing, here are some of the most common types of investments you could explore:
- Shares - buying a stake in a single company
- Funds or Trusts - investing across a number of companies, often in a specific sector
- Property - investing in physical buildings, or investing in a fund/trust that’s property-specific
- Bonds - also called fixed interest securities, these are essentially loans to a government or (less commonly) a private company
Within these asset classes, there are so many options to invest in a way that’s right for you. Let’s take bonds, for example. You could invest in UK Government bonds, which are widely considered a safe and reliable investment. Or, you could chase higher returns by choosing private bonds, where the borrower’s chance of defaulting on your payment is a lot higher.
How to start investing
If you’re serious about investing, it’s always best to speak to an independent financial advisor before doing anything. Unless you have a background in the complex sector, it’s really easy to make a mistake and invest in something that isn’t right for your risk-appetite or goals. Though they can be pricey, investing in their services before taking the plunge could save and even earn you money in the long term.
If that’s not an option, sites like The Money Advice Service and moneysavingexpert are excellent free resources that will help you get to grips with investing. And if you’re looking for more trusted business advice, you can check out our articles catalogue for more information. We’ve written guides on everything from marketing to mental health, so you’re bound to find something for you.
Sophie Cole, Point Franchise ©