Investment Strategies for Small Businesses in Kenya.
Investment of capital can be a smart way for small business owners to increase their cash flow, but there will always be an element of risk when it comes to investment. It is important that as an SME owner you identify the best strategies and be careful in order to avoid risk. There are a few good investment strategies for small business owners to consider.
Most common types of investment for small businesses
1. Stock markets.
This is one of the most common types of investments for small businesses. Companies divide the business property into a number of shares, which are sold for profit. When you buy a share in the stock market, you are investing in a small part of the profits and assets of a specific company.
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The advantage of this is: As an investor, you can buy and sell shares of different companies. If the value of the shares goes up, you can sell them and make a profit. In some cases, companies distribute dividends (a part of the profits that some companies periodically pay to their investors.)
The cons of investing in the stock market; Investing in the stock market has a risk, if the activity of the company of your choice drops, those actions lose value. And if that company goes bankrupt, you will lose all your investment.
2. Management of funds.
Funds are common reserves for capital that are established for a specific purpose. They are usually managed and invested by professionals. A business owner can also invest in funds to obtain a return. They have the advantage of giving you access to a large number of investments through a single transaction.
3. Banking products.
Certificates of deposit (CODs): They are issued by banks and credit unions, offering an interest if the investor doesn’t use the money in the COD for a certain period of time. There are penalties for withdrawing the money before the end of the term. There is a great variety of CODs from traditional and online banks, offering different interest rates and terms.
Saving accounts: There are high-performance savings accounts designed for future emergencies or an expensive purchase planned also in the future. They are usually offered by institutions other than banks with physical branches, which may imply higher expenses. The advantage of this kind of investment is: Unlike stocks and bonds, they are safer investments and guarantee a return. They also offer interest rates above inflation.
The cons: If you need to access the money, there are penalties for early withdrawal. You also have to pay special attention to commissions, charges, and requirements. Depending on these regulations or terms you could even end up losing your money.
Investment strategies suitable for Small Businesses in Kenya
1. Stocks and Shares: When it comes to investments, stocks and shares are typically the first things that spring to every entrepreneur’s mind. Stock and shares are also referred to as “ownership investments,” these give an investor a small portion of another company, allowing one to cash in on some of its profits. The more shares you have, the more profit you’re going to make. However, the more you do invest, the higher the risk. The value of your shares can fluctuate daily.
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There are different organizations in Kenya selling shares to investors. We have Saccos, companies and banks, and other financial institutions. With thorough research and inquiries, small businesses can get the perfect organization to invest in. Knowing how steady a company has been in the past years in the stock exchange market will help you decide whether or not you want to invest.
2. Setting up an Emergency Fund: As the current Covid pandemic period has proven, it is also important to have an emergency fund for both the business and yourself. Situations can change very quickly and having funds ready will help you to reduce the risks at hand to maintain your business and lifestyle. Putting away even a small amount of savings each month can make a big difference and should be prioritized.
This Investment is smart, as a small business owner and can be a good way to build your business and personal wealth. This is part of the few key areas that are worth investing in and could make a big difference in the long run.
3. Invest in your business: Putting capital back into your business will take you forward and help the business to reach its goal and compete at a much higher level as well as increase your profits. The key to success with this strategy is to make sure that you are reinvesting in the right areas of the business. It will depend on your individual business, options to consider when doing this include:
- Upgrading technology used and equipment
- Hiring new and qualified staff
- Launching new products and services
- Increasing your digital marketing
As a small business owner, whichever type of investment you choose, it is important you do as much research as possible before you begin. In order to choose the right type of investment, you need to consider three main factors: How much of a risk you’re willing to take, how much flexibility you want, and how experienced you are with investments
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