The founders and managers of businesses in Germany, Italy, Poland and other European countries do not need to be told how to run their own business. But not all of them know how to invest the money they earn.
Starting a business in Germany or other European countries and managing the processes is difficult and troublesome. It is profitable, but it requires constant attention from the founder and manager. Investing is not just a way to make extra money. It is an opportunity to earn income without making daily efforts for it. That is, it will be passive. Here is a guide to investing for business owners to help them free up some time for themselves and their family.
Where to invest as a businessman
When it comes to the average office worker, the main advice before investing will be to control their expenses, gradually accumulate a financial cushion and invest in reliable industries. Such a person only needs to follow 5 tips for profitable investing to be successful.
In the case of a businessman, the approach will be somewhat different. He is already running a business and knows how to plan a budget. All he needs to get a passive income is to allocate some funds from the turnover and invest them in one of the areas that are listed below.
Investing in yourself for development
The first step to passive income is to invest in yourself and your own business. Therefore, it is better to divide all the income that the owner of the company receives from its work in this way:
- 20% to spend on personal needs and family;
- 80% to invest back into the business. That is to leave them in circulation.
Of this amount should be spent up to 30% on the purchase of new means of production. A specific list of necessary depends on the type of business. If it is trade, you need to buy warehouses and stores, if agriculture – specialized equipment, if production – machines.
With this approach, the business becomes more stable, and profits increase automatically due to the growth of production volumes.
It is also possible to reinvest:
- In narrow specialists, who will bring your own knowledge and increase income. You need to consider how much each employee spends on pay, how much time he spends on work and what financial result he brings.
- In optimizing human labor. It is better to buy or lease equipment at once, which reduces the labor intensity of operations. Despite the high capital costs, this approach will bring profit in the future. That is, it will reduce the number of employees, which will reduce the wage fund and tax deductions for it.
Investments in other areas
Only after the business becomes fully stable and brings a high income, you can change the formula for the distribution of profits received for investment. It will look like this:
- 30% – for own needs;
- 30% – investment in further business development;
- 40% – investment for passive income and risk diversification.
Let us consider several reliable and profitable areas of investment for businessmen from Germany.
Start-ups or promising lines of business
For the businessman, the logical step would be to invest in German or international startups. An alternative could be an existing business which needs to expand its markets or production volumes.
There is one nuance here: it is better to invest in those areas in which the businessman is well versed. For example, if the investor is already running an agricultural business, it is better to focus on it. If you “get into” an area, the mechanics of which are not familiar, you can simply lose the funds invested.
Note that investing in startups is not really a passive income. Here you still have to control all the processes and intervene in management. It is also important to manage the processes strategically and, if necessary, to make operational decisions.
With this approach, the chance of losing your investment will be almost zero. However, it is necessary to take into account the legal risks. Therefore, before investing, it is recommended to consult with lawyers and draw up a contract that protects the rights of the investor.
Buying shares of large corporations in Germany, the United States or other countries is a type of passive income, which requires almost no intervention from the investor. But profitability is in question. If the corporation does well and grows, the value of the securities will rise. And the investor will receive income. Otherwise, the investor will have to count the losses.
Only specialists can actively “play” at the stock exchange. Businessmen should better pay attention to long-term portfolio investing. It implies purchase of shares of “blue chips” or other reliable companies and their long-term storage.
Several goals can be achieved this way:
- Protect capital from inflation;
- Diversify the risk of losing your business;
- Receive passive income monthly or quarterly (when buying dividend shares);
- Receive income after selling shares in 2-3 years if the price rises.
A stock investment option is buying shares of ETF funds. In this case, investments are automatically diversified and the risk of losing funds tends to zero. Although it is still present.
One of the most common ways to invest is in real estate in Germany or any other country in the world. This method of investment is chosen because it ensures maximum reliability and minimum risk. But the profit will be less than in other sectors.
You can invest in homes, apartments and rooms, commercial real estate. You can buy real estate in the UK, USA, Germany. Financial institutions in some countries like the United States, for example, lend to non-residents to buy real estate. Therefore, you can invest not only their own, but also borrowed funds.
The latter option is especially attractive. In this case, the investor invests in real estate, but leases it. The payment from the tenant almost completely repays the loan payment, and when the mortgage expires, you can get a “clean” property.
If you buy in a popular city or neighborhood, the rent can be even higher than the monthly loan payment. Therefore, passive income can be earned immediately after the purchase of the property.
What’s the bottom line
Instead of concluding as a summary, here are a few tips to help you invest profitably and not make the mistake of investing:
- Do not invest in an area in which the businessman does not understand;
- It makes sense to diversify income and invest in different industries (including cryptocurrency);
- You do not need to invest large sums at once, hoping for a large profit;
- Do not “fall for” advertising slogans, promising fabulous income, most likely, it’s a scam;
- It is better to think about how to earn more, than how to spend more.
This simple guide to investing for business owners will help you not only make more money, but make less effort to do it.