Investment of Surplus Funds: Uncharted Waters for Businesses
People are already coming to an understanding that investment is a smart way to save money for later or larger purchases. Yet, businesses rarely think about investing the surplus funds. According to the alternative investment platform Debitum, the funds accumulated by companies should and must be employed as well.
Much like for any individual, there is a time for a business to take loans, and there is a time to start saving. When in need of funds for investment projects or development, it is a natural thought to go to a bank or other financing institution. However, when a company has reserves for future projects or some unappropriated profit which cannot be reinvested into its economic operations for the time being, the management rarely thinks of other ways to circulate the funds. In fact, the only thing that must be done here is choose the right investment products that match the investment risks and duration suitable for a particular company.
Platform investment data and conversations with customers reveal that dividends comprise a large part of the invested funds. This means that following the shareholders’ decision to pay dividends, the income tax at the rate of 15% was paid and the amount which could have been invested got reduced.
According to experts, instead of paying dividends, shareholders could accumulate this money and later invest it on behalf of the company. This would allow paying less taxes. While the investor would still have to pay a profit tax applicable to their investment, this would be a considerably smaller amount, compared to the income tax applicable to the entire value of dividends.
It can also happen that the owner of a company has to invest the money received from dividends back into business due to changes in the market situation, like, for example, the ongoing pandemic this year.
This means that the money is lost, not to mention all the additional procedures that could have been otherwise avoided. First, income tax is collected upon the payment of dividends. Then, the articles of association of the company must be amended to allow the reinvestment of the dividends and the decision regarding the increase of the company’s capital must be registered at the Center of Registers.
RISKS AND LIQUIDITY
“Risk” and “Liquidity” are the two keywords in investments made by companies. These indicators are important no matter where and when one is making an investment. However, in case of companies, the risks should be assessed much more carefully. Investors should take the peak seasons of the company’s operations into account (perhaps, certain periods require more funds invested into everyday operations) and to carefully assess the estimated income and expenses.
When planning investments, companies should employ more rigorous strategies, choose short-term investments and safer projects.
Alternative investment platforms could be a good choice for investments as they allow choosing projects of varied duration, ranging from 2 weeks to 2–3 months or even longer, and different risk profile loans. Forecasts of estimated return on investment are also available, which is impossible in the stock exchange.
Investment platforms do have their variables. Investors can use certain tools which can be controlled to a degree, such as the investment term, risk level, desired return on investment or additional security parameters, such as choosing loans with a buyback guarantee.
The important thing to do is to choose a platform that provides transparent information about its activities and has reliable credit risk assessments. For example, the credit risk assessments for the Debitum platform are carried out by a reliable third party, e.g., Scorify in Lithuania or other assessors in other countries. This provides more trustworthiness compared to risk assessments by platform representatives.
BUSINESSES SHOULD INVEST IN BUSINESSES
Alternative investment platforms offer investments in a variety of loans. However, for companies, business projects are the way to go.
Companies should invest either in business loans which carry less risks or into loans secured with real estate. The decision to offer investments into loans on the Debitum platform is conditioned by the fact that the bad debt portfolio on the Debitum platform is surprisingly small while the liquidity is one of the highest in the market. Those who prefer short-term investments have a lot to choose from.
Next to the choice of loans on the platform, the way the platform managers present information is yet another important factor. When making investments on behalf of a company, the available information on investment increase, taxes, etc. must be accurate for it will have to be entered into the company’s financial statements and all the numbers must be correct both in the accounts of the investment platform and the investing company.
KEEPING THE GOAL IN MIND IS A KEY TO SUCCESS
Investing on behalf of a company is a rather simple thing to do, though not a widely known opportunity.
The CEO, accountant or any other person authorized to act on behalf of the company can make such investments. The company has to register on an alternative investment platform and submit documents about its economic operations.
What matters later is not forgetting the goal the company has been established for, what it does and why, so as to not end up relying solely on investments. Investments should be an additional source of income, the possibility to use the company’s reserves more efficiently and nothing more.
Disclaimer: Investments in financial products are subject to market risk and any investment should only be done with risk capital. The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.