Should Your Business Buy Shares In Other Companies?

Stock Market Newspaper

Running a business can often be a complicated affair. There are many facets to a company that you have to manage on a daily basis. From human resources to sales, there’s a lot to deal with each day.

At the same time, you also need to ensure that your business grows. The last thing you want to happen is for your organisation to make a loss! You will no doubt have a range of marketing strategies to help you grow your business.

But, have you thought about investing some of your profit to future-proof your company? As individuals, we often think about investments and private pensions. You might not know it, but companies can invest in other businesses by buying shares in them.

Should your firm be doing the same? In a word, yes. Here’s why:

Your business depends on a particular service or technology

The only way that any company can grow is if it has significant investment. Each business needs money to fund research and development projects, for example. It also needs to cover the cost of hiring staff and training them. Plus, it will have to pay for legal red tape. Especially when it comes to inventing and patenting something new.

Let’s say that your business has a vested interest in a particular service that it uses. Should that service fail, it could prove devastating for your firm. By investing in that business, you have a say in how it gets run. Especially if you are a majority shareholder.

You don’t want to keep all your eggs in one basket

Spreading money across different investments helps you to limit risk. It’s a classic strategy that all successful investors use each day. Sure, you might have a corporate savings account that generates some interest. But, you should also invest some of that money in company shares.

What happens if the bank holding your savings money goes bust? It can be a long struggle to get that money back. When you spread your money around, you keep your risk low.

You are thinking of taking over another business

One tactical move by companies that wish to buy other firms is to purchase shares in them. Of course, that’s a strategy that only works in some cases.

For instance, this will work for smaller public businesses. But, what about large ones like telecoms giants? As you can imagine, Vodafone shareholders can’t do a takeover bid if they have just two shares. But, if they own more than half the company, this is a possibility.

You could grow your business on the success of others

Imagine setting up a company that doesn’t sell anything yet makes a profit each year. It sounds crazy, right? It is possible to achieve if your firm’s sole purpose is to invest in other companies.

Assuming the businesses you invest in do well, you’ll profit when you get your dividends. So, now that you know the advantages of buying shares in other businesses, when will you start to do that?

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Beth Jones is a valued contributor to various blogs.

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