Investing for business

There are three little secrets that large companies have been doing successfully for years that many small businesses seem to be missing.

The first is managing their cash flows efficiently. Most business owners know the ebb and flow of their monthly and seasonal cash flows, but it seems that many small business owners are unaware of how to capitalize on the extra funds. Their larger competitors, along with many charitable organizations, make use of the extra cash by opening an investment account and parking it in money market instruments, thus, earning significantly higher returns until the funds are needed by the business.

Money market instruments are short-term debt obligations issued by banks, corporations, and governments. They are issued at a discount to their face value and mature at par. Money market instruments can be purchased and sold for same-day or next-day settlement. This means that if the business owner has a cash flow shortfall, the funds can be deposited back into the account in a short period of time.

You don’t need $100,000 to start. For longer terms like 180 days, $25,000 at 4% becomes an attractive rate of return on short-term funds, and most commercial banks have the ability to help you. If not, seek out the representative of their investment dealer or contact an independent investment dealer. Costs should be negligible, because the financial institution makes its money on the spread between the bid and offer. There are some risks. If interest rates rise rapidly and the business owner needs to sell the money market instrument prior to maturity, the initial stated return will be lower.


Second, look at protecting your business. Major corporations insure their key executives, and small business owners should do the same thing. Call your insurance specialist or, if you don’t have one, call one of ours. Financial security planning involves the integration of products and services that protect the business owner should they or their key employees suffer a short- or long-term disability, death, or illness. Investigate plans that provide coverage on the costs of running your business. If it’s a partnership, consult a specialist that will help create a sound buy-sell agreement backed by appropriate insurance products. This will create the necessary capital needed for the continuation of the business and could help avoid nasty litigation issues in the future. Not only are you protecting the interests of your business, but you are also protecting the partners and their families should one of the partners pass away or become disabled.

Third, look at investing in your employees. Business owners already know that finding quality, dedicated employees in this competitive labour market requires constant attention. As your business grows, so do the demands and skill sets of your employees, and what better way of ensuring their loyalty than by showing them you care about their future. Encourage them to upgrade their skills and offer to pay for courses and programs that allow them to grow with your business. Consult your tax advisor to discuss the potential tax credits and tax deductions. The local colleges and universities offer business programs, accounting diplomas, and professional development programs, many of them available with evening courses.

Think about providing your employees with financial security as well. Contact your financial or insurance advisor and ask which options are best for your business. Depending on the size of your company, you can look at deferred profit-sharing plans, group RRSPs, as well as individual or corporate pension plans.

Financial advisors do more than just manage investment portfolios. They bring their expertise and the expertise of their firm and apply it to all aspects of their client’s personal and business needs. Picking one isn’t always so easy. If you are unhappy with your current advisor or are in need of one, the process should begin in much the same way you hire an employee. Check out their qualifications, ask about their employment history, and ask about their areas of expertise. If they are going to be providing investment advice for you and your business, make sure they are qualified to offer all of the products necessary to grow that business. If they can’t, then make sure they are able to refer their clients to other experts such as accountants, lawyers, and insurance specialists.