When you’re searching online for advice about the finances of small businesses, you’ll see the term cash flow pop up a lot. The biggest killer of new businesses is cash flow problems; if you spend all of your cash before you start bringing in enough revenue to cover your running costs, you’ll fold. That means you need to build up enough cash before you start the company. Part of that will come from investors but you need to show that you’re serious about the business by risking some of your own cash. If you’re struggling to save up enough money, investing the savings that you do have is a good way to get there. The world of investment is a tricky place but this list of the different types of investment explained will help you along the way.
Stocks
You’ve probably got a good idea of how stocks work; you buy a portion of a public company and the value of your stock either increases or decreases depending on how the company is performing. When the value increases, you sell for a profit. But that’s only one way to make money from stocks. If you’re trading on the Foreign Trade Exchange (usually known as forex trading) you can also make a contract for difference investment. Instead of buying the stock itself, you essentially place a bet on its value. You put up your money and if the value increases, you can sell to make a profit but if it decreases, you can easily lose money. The benefit of these kinds of trades is that you don’t need to pay the value of the stock itself, you can enter the trade with a lot less money, and therefore risk.
Bonds
Bonds are another staple investment in the financial world. Bonds are essentially a loan; when you buy one you lend that money to an organisation and they pay you back with interest over a set period of time. There are all sorts of different bonds relating to different types of debt. For example, a bank may give a mortgage to somebody, then sell it as a bond to an investor. The investor pays the bank the money it loaned and in return, collects the repayments, with interest, on that debt.
Certificate Of Deposit
A certificate of deposit (or CD) is a lot like a savings account. The CD is a promise from the bank to return your money with interest. The major difference between a CD and a normal savings account is that you can’t access the money for a long period, set by the bank when you put the money in. In exchange for this, you get a higher rate of interest. This might not be the best option if you’re trying to save up the cash to finance a new business because you’ll need access to it sooner but it’s a good option for your personal savings.
Venture Capital
You should be familiar with venture capital, it’s the money that investors put into a new business. Eventually, you’ll be trying to investors of your own but before that, it’s a good idea to invest part of your savings in a company. It’s a good way to make them grow and save the money to start your own business but it’s also a great way to get some experience. Having a stake in another startup will teach you about the finances of a new business and that experience will come in very handy when you start your own company.
Commodities
Investing in a commodity just means putting your money into some kind of resource. This could be anything from oil and gas to food etc. When you’re investing in commodities, you’re often safe from market downturns. Things like food and power are always a necessity so even when the economy isn’t in a great way, those companies are still relatively stable. Energy is governed by supply a lot of the time; oil, in particular, is prone to big fluctuations when the supply is low. It can also be affected by political factors so it’s quite an unpredictable investment to make. Commodities are one of the safer options and although you won’t see as much return as you would investing in stocks, you’re a lot less likely to lose large sums of money.
Investing your savings to build up the cash to run a new business makes the process a lot quicker, but you’ll also benefit from the experience. Having a better understanding of the financial world before you start your own company will make the process a lot easier for you.