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Keeping your profits safe

Jan 11, 2016

Keeping your profits safe

Where to safely invest business profits

It’s a good problem to have – your company is making money in excess of its costs, you’re generating profits and you need to decide where to what you’re not reinvesting back into the business.

The priorities need to be risk-management, capital growth and yearly return and whilst options like shares might offer superior growth returns to a savvy investor, they also suffer from much higher risk.

So where can a sensible business store their hard won profits?

Property – Direct Investment

Unlike most investments, property is one of the few available options where utilising bank funds in conjunction with your own is fairly simple. The ability for an investor to place a limited amount of capital and leverage that capital to procure finance and maximise their returns makes property investment attractive.

In simple terms? Your money can go a long way.

Couple this with the tax advantages of rental income and the potential ability to balance mortgage interest deductions, as well as the historically strong asset value growth performance of property in the UK, and property presents an attractive prospect for your funds.

Bear in mind though, that property is illiquid. A property transaction can take weeks or months and recovering your capital can therefore be ponderous. The ability to react quickly to stimuli in business is crucial, so such slow access to retained profits could be inconvenient to say the least.

We asked one of our chartered surveyors in the popular buy-to-let investment area of Manchester to comment:

“With the Bank of England base rate still at its historic low, saving rates provided by banks – even to established businesses – remain poor. Alternatives should be considered and property offers an interesting option that has historically been a risk-minimal source of consistent capital growth. If you can overcome the illiquidity issue, sensible property investment could help your company ensure its longevity.”

Property – CrowdFunded Investment

Direct investment is not the only method of investing in property. In recent years, various companies like the House Crowd have emerged to provide a CrowdFunded investment service whereby investors can purchase shares in a special purpose vehicle (SPV) which buys a given property on their behalf.

Several advantages exist with this method:

-   money can typically be withdrawn by selling those shares on a secondary market

-   the benefits of rental income and capital growth can both be enjoyed without the need for substantial capital; investments can be a small as £100.

-   good providers offer a range of property options, each with different investment characteristics

That said, those secondary markets are young and there is no guarantee that a third-party will be willing to buy your shares, certainly not at a price that would be attractive. Liquidity could be much higher with this form of investment, but it could come at a heavy price.

 

About the author:

The Right Surveyors are a group of independent chartered surveying practices providing surveys, valuations and investment advice across England and Wales. You can find out more via their website www.rightsurveyors.co.uk

 

Disclaimer – The Right Surveyors are not accountants and the preceding article should not be considered to be professional legal advice, nor should it be relied upon. We advise that any company considering investing in property refers the matter to their accountant to assess their particular taxation circumstances and the finance implications of investment.

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