Make your money work for you using this disruptive tactic

While many businesses find themselves at the mercy of cashflow, occasionally some SMEs find themselves in the opposite situation – they have too much cash at once and they don’t know what to do with it.

While many business owners would think to place that money in a savings account, the low interest-rate environment means they could lose money due to inflation. As many SMEs know, the ability to invest that cash is what makes all the difference.

Of course, many businesses can adopt alternative investment strategies including a mixture of equities, real estate trusts, bonds, exchange traded funds, forex trading or even investing in other businesses, but these all carry a significant level of risk many SMEs aren’t willing to take.

Instead, businesses should consider investments that can provide a better return while reducing their risk. For many, this may mean placing funds in a term deposit – but often those carry interest rates only slightly above inflation.

There are, however, alternative investment mixes that can provide a higher return than term deposits, with lower fees and a more personalised touch to investment than traditional trading platforms. Instead of term deposits, these are term investments – and they can help business owners get ahead.

James Mawhinney, CEO of IPO Wealth, a business that specialises in these types of term investments says that, “Term Investments are a great way for business owners to deploy their idle cash effectively.  It is otherwise being eroded by inflation.

“The key benefits are that you can invest for a pre-determined period of time, choose from regular distribution options, and automatically extend your investment period should you need to,” he says.

“My personal view is that the banks are making a profit on the money people place with them, but there is still a risk profile associated with that money – otherwise the banks wouldn’t pay a return!”

Term investments, unlike term deposits, are investments and carry a different type of risk profile – which can result in greater investment returns. While some term deposits carry returns of 2-3% per annum, term investments offer returns of between 3-6% per annum, over as much as five years.

For many business owners that type of return can be transformational. Jason Gilbert, co-founder and joint CEO of online long-term rental property platform Cubbi, says a small difference in financial return can mean a significant amount – especially if those extra funds can be diverted into new campaigns to help advance the business.

“For us, it’s about market opportunity – and it’s about speed to market. The more money we have, the faster we can act on product development, experimenting with campaigns, and so on,” he says.

“Having that extra money can help you experiment.”

For small business owners, a strong capital base can make the difference between jumping on board growth opportunities and maintaining the status quo.