£30-£40k to invest. Where to start?

Pablo79

Hi all,

My first post here, so be gentle.

I own a small business and have some money sat in an instant access savings account getting pitiful interest. My business partner and I have discussed taking the money out and investing it for better returns. Leaving enough cashflow for the business, we could take out £30-£40k for investments.

I'm completely new to the world of investments (apart from a personal SIPP) and really don't know how best to invest this money. We're quite happy to spread our investment over low, medium and high, but of course do not want to risk losing everything.

Could anyone offer any initial advice?

With thanks.

westy22

Why would you not invest in your own business? Do you truly believe that total strangers, in an investment vehicle you may not fully understand, operating in an industry and environment where you may have scant knowledge and information, will do better than you could in a business that you know thoroughly and control completely?

I am also an owner of an SME and I always reinvest company money back into the business - that is how we grow and prosper! If we stood still and divested working capital outside of the company then we would wither on the vine.

Personal money (salary, dividends etc) is, of course, a totally different thing and I do invest broadly with my own (tax paid) money but reading your first paragraph I believe that you are talking about company money that has not been distributed.

Pablo79

westy22 wrote: »

Why would you not invest in your own business? Do you truly believe that total strangers, in an investment vehicle you may not fully understand, operating in an industry and environment where you may have scant knowledge and information, will do better than you could in a business that you know thoroughly and control completely?

I am also an owner of an SME and I always reinvest company money back into the business - that is how we grow and prosper! If we stood still and divested working capital outside of the company then we would wither on the vine.

Personal money (salary, dividends etc) is, of course, a totally different thing and I do invest broadly with my own (tax paid) money but reading your first paragraph I believe that you are talking about company money that has not been distributed.

Thanks for your reply. Other money in the business is used for its ongoing development, so I'm not worried about the that, but a good point well made. Of course, we could spend even more, but we're looking to spread things about.

The money is profit and so tax has been paid. These are effectively the savings of myself and my business partner which we've not drawn.

atush

Well, you could put some in your pensions. You could put some in NSI ilscs. What is your personal financial situation?

Have you got savings? Are they in ISAs as you seem to be a taxpayer? Have you got a mortgage? How soon will you need the funds? Will the fiunds be invested inside the company's books, or will you pay it out as a dividend?

Pablo79

atush wrote: »

Well, you could put some in your pensions. You could put some in NSI ilscs. What is your personal financial situation?

Have you got savings? Are they in ISAs as you seem to be a taxpayer? Have you got a mortgage? How soon will you need the funds? Will the fiunds be invested inside the company's books, or will you pay it out as a dividend?

I have some money in a SIPP but no other savings. This is effectively it. I do not have a mortgage but I do not need access to the funds any time soon. The money will be taken out of the business and paid as dividends, so we can use it personally.

I've just read that we can each invest £10k in a Stocks and Shares ISA, which might be good for some of it. The rest we could put in something else or wait until the next FY.

atush

Well, everyone should have a cash buffer of 6 months expenditure. And you pay tax, so you don't want to pay tax on your interest/gains. So put money into a Cash ISA. Then a s&s isa up to your allowance. Which funds will depend on you and your attitude to risk. If you want to keep some and guarntee an income above inlfation you can put ip to 15K into a NSI ilsc which will pay infl+.

I would also top up your pension.

Loughton_Monkey

If you are ruling out investing directly in the business, then forgetting all the 'off the wall' suggestions [gold, silver, BTL property, pork bellies] it would seem that Pensions or ISA's are your best bet.

Pensions would be technically the most efficient [especially so if you are a higher rate taxpayer] but clearly have restraints of access. And remember that money in your pension would be protected [unlike ISA's] from any personal liability you may have with your business if it were ever to fail.

If this doesn't suit, then Stocks & Shares ISA's are probably the answer. As you say, you can put in £10,640 per tax year. The balance £20/£30K could easily be put into similar funds for the time being. Provided you 'manage' any CGT liability by timely profit taking where necessary, then by drip feeding them into the ISA over the next couple of years will have produced the same result as if you were allowed to put it all into ISA up front.

waveneygnome

I can sympathise with Pablo79.

I co-own a small manufacturing business. We own all our equipment, budget £50k a year for new kit. Draw modest wages/divi. Work long hours, carefully manage our creditors/debtors.

Consequently we have now built up £300k of profits....earning a massive 1.75% from our bank.

We feel we should be doing something better with this money. We are happy with the size/scale we operate at now - don't want/need to invest further in our business.

We would like to spread the risk of having all our eggs in one basket.

Any ideas where we can keep the money within the company but get a better return?

westy22

Any ideas where we can keep the money within the company but get a better return?

You could consider lending to other businesses using, for example, Funding Circle https://www.fundingcircle.com. Businesses can register as lenders in their company name and loan to other small businesses at a decent yield of about 8% to 8.5% pa. I would suggest only lending to businesses that are seeking loans backed by director guarantees. There is a small risk of default but if you spread your loan risk around several businesses (say no more than 5% - 10% of your capital to any one company) then you should be able to manage the risk down to about 1-2% pa. I have been lending there for almost 12 months and have not had any defaults yet - not to say that it won't happen but providing I am earning 7% pa net of defaults then I am happy