Businesses have several options when it comes to storing a cash surplus. They might draw it as income, or store it in a bank account. Another alternative comes in the form of corporate investing.

What is corporate investing?

Corporate investing is a tax-efficient means of putting money from your business to one side, and putting it to work. Investing the money directly into your company might not always be a sensible move, since you might not be in a position to spend it wisely or efficiently. Through corporate investing, you can put the money into the pocket of an organisation that’s in a better position to make a return on it.

What are the pros?

Through corporate investing, you can make your operations more tax-efficient. You might also diversify your revenue streams, making your business more resilient to sudden shocks. Corporate investing will also generate a return which can be ultimately invested in your business. The rate of this return will tend to far outstrip that of a traditional savings account.

What are the cons?

Like any other form of investment, corporate investments come with risk attached. While there are ways of mitigating this investment risk, there’s still a chance that you’ll lose the money, as a result of circumstances beyond your control.

The money you invest will also be unavailable to put into your business. You might need to access the cash in a hurry, because your cash flow naturally fluctuates due to seasonality.

These potential downsides can be managed by consulting an impartial, external accountancy service before making the investment. You might even entrust such an organisation with making the investments on your behalf.

What can you invest in?

A business might invest in stocks, potentially through a limited liability company. This will present tax advantages, as you’ll be able to pick and choose your tax treatment. Then there are trusts, pensions, bonds, and commodities – these being products like gold and oil. Naturally, you won’t be storing these commodities yourself, and in practice, commodities trading works much like trading in non-tangible products.

Tax considerations

When you’re investing in this way, it’s essential that you stay on the right side of the law. On the other hand, you’ll also want things to be as tax-efficient as possible. If your company is sufficiently small, then you’ll only have to pay tax on investments that have been realised. Larger companies will have to declare commodities trades, even if you’ve only bought, rather than sold.

Some investments will push you over the threshold for capital gains. For this reason, it might be a good idea to stagger your sales over a long period of time, so as to minimise your liability. This is where the input of a good finance department can be critical.