Corporate Investing

Corporate investing is a way to put your business’s surplus cash to good use. Instead of just holding all your cash in the bank, you can put some of it into investments to generate additional revenue. The investments are usually very liquid and can be used for business investments at a moment's notice. 

It could also be a more tax-efficient way to draw money from the corporation when not intended to be used as income. For small business owners, investing within their company could be a more tax-efficient solution than paying themselves excessive income.

Set goals and keep a cash buffer

Clarify why the business is investing; examples include protecting cash from inflation, generating extra income, or funding future expansion. Maintaining enough liquidity is crucial. 

Know your risk tolerance and time horizon

Define the level of volatility the company can realistically tolerate given the cash flow, industry, and debt profile. Match investments to time horizon: short-term needs typically go into safer, more liquid assets, while long-term surplus can go into higher-risk, higher-return investments.

Diversify across assets and sectors

Spread investment across different asset classes rather than concentrating in one area. Diversifying by sector and geography helps smooth returns and reduces the impact if one company, industry, or country underperforms.

Do rigorous due diligence

Evaluate the fundamentals: financial strength, cash flow, balance sheet, competitive position, and management quality. Estimate prospective return on investment versus risk and compare options; avoid any instrument that the leadership team does not clearly understand. 

Align with strategy, values, and tax planning

Ensure investments support the company's broader strategic plans and do not divert critical capital from core operations or growth projects. Consider tax implications and coordinate with professional tax advice to avoid unnecessary leakage. 

Monitor, review and manage risk

Regular review performance, check whether each holding still fits the original objectives, and rebalance because of drift or changes in business conditions. Use simple risk controls - position limits, diversification, and sometimes some hedging to protect the balance sheet from severe downside scenarios. 

Corporations have specific requirements, which usually include the need to access the funds immediately or within a short notice period. It is also usual that corporations don't have the tolerance for investment volatility; therefore, investments are typically of a lower risk nature. Some corporations might need to diversify their assets, investing in an altogether different sector from the one they operate. Conversely, they might have aspirations to take an increasing ownership in a rival corporation, buying more of its shares and possibly leading to a merger and acquisition. Every corporate client is unique and has its own motivations for corporate investments. The investments corporations invest in include the following:

• Funds - There are wide-ranging options like mutual funds (that allow you to invest in a portfolio of bonds, securities and stocks) and sector-specific vehicles like real estate funds.
• Investment trusts - You pool your money with other investors to invest broadly or in a specific sector/area of the market.
• Individual stocks - You could invest directly in another company or several companies. 
• Bonds - Government bonds are considered low risk or even risk-free, but you could also explore corporate bonds if you’re looking for higher returns.
• Commodities - Tangible assets like gold, rare earth metals, or oil. 

Enquire within to learn more about corporate investing and whether it would benefit your company.