A guide to commercial investments

Making your business capital work harder


Money that sits in your business bank account is hard-earned, but in times of high inflation and interest rates failing to keep pace, the purchasing power of your money is likely to be eroded over time.

If you have surplus cash sitting in your business bank account, it may not be working as hard as it could be. This is where investing could help, giving you the chance to maximise your practice funds and beat the effects of inflation.

Learn more about how commercial investments could offer the potential for higher returns on your business cash reserves in our guide below.

Please remember that the value of your investments can go down as well as up, and you may get back less than you put in.

Why consider commercial investments?

Commercial investments allow your business or corporate entity to invest in funds that aim to make your money work harder and lessen the impact of inflation.

Investing in funds offers the potential to get higher returns on your money than you would from interest in a savings account.

While it’s a well-known fact that investment comes with risk, deciding not to invest your money can result in ‘inflation risk’. This means that the real value of your savings decreases because of inflation over the medium to long term.

As such, it’s important to recognise that having a significant balance in your business savings account (above what you need to run your practice) isn’t necessarily risk-free.

What is the impact of inflation on cash savings?

If your money is sitting in a low-interest savings account, it may struggle to keep pace with inflation. In other words, even though your balance is steadily increasing, your cash may be worth less in real terms as goods and services become more expensive to buy.

For example, if you have £1000 in cash savings, and the rate of inflation is 5%, in just one year the buying power of your money will be £952 (plus whatever interest you’ve gained). In five years’ time it will be worth £784, and in ten years, £614. This shows how the money you hold onto as cash can slowly lose its buying power over time.

To see the potential impact of inflation on your money, check out our handy inflation calculator.

How do commercial investments work?

The process of investing your business capital is the same as investing your personal money. When you invest in a fund, your money is pooled with other investors to buy a range of assets that may be difficult to buy alone. Rather than owning these assets outright, you own units in the fund.

With a Unit Trust Investment Account from Wesleyan Unit Trust Managers (WUTM), your business or corporate entity can invest in up to six risk-rated funds. You can choose which funds your money goes into based on how much risk you’re willing to take.

When it comes to making this decision, you can simply select the fund you’re most comfortable with, or spread your money across as many as you like. You can also swap funds at any time.

Each fund is managed by a Fund Manager who will take care of finding investment opportunities they believe will benefit Unit Trust Funds over the longer term.

There will be some advice and management costs to pay if you decide to invest in a WUTM Unit Trust Investment Account. You can find out more about these charges here.

The importance of taking a long-term view

While investments can by no means guarantee to beat inflation, time in the market allows funds to ride out any economic fluctuations and, as a result, offer the possibility for greater returns.

Staying invested in the long-term may improve your overall returns, and give your money more time to grow and recover from any short-term dips.

With this in mind, it’s usually best to approach investing with a long-term view. If you’re unable to lock away your money for a minimum of five years, investing may not be the right option for you.

How do I know how much to invest?

When it comes to how much of your money you should invest, there isn’t a set percentage or number. It will really depend on your individual circumstances and business expenditure.

A good starting point is to work out how much your business needs to operate in the short-term. This includes your everyday running costs and any bills you pay on a regular basis.

The next step is to anticipate the expenditure your business may require in the next five years. For example, if you’re planning to carry out any refurbishments, these funds will need to be accounted for in your planning.

Finally, it’s always wise to allow for an emergency fund as a safety net for when something unexpected happens – for example, damage to your premises or building repair works.

The amount you put aside for emergencies will be personal to you. That’s why it’s a good idea to speak to a Specialist Financial Adviser from Wesleyan Financial Services, who will be able to review your finances and establish what is suitable for you and your business.

Once you’ve worked out your short and medium-term expenditure, you’ll be able to assess your excess income and how much you’re able to invest in long-term funds.

Flexible investing

While commercial investments are best suited to those who can invest for at least five years, you can still take your money out at any time.

With WUTM’s Unit Trust Investment Account, you can withdraw money either on a one-off basis or by taking regular income, without any exit fees. However, it’s important to remember that any gains may be subject to capital gains or corporation tax.

It is also an open-ended investment, which means you have greater control over your contributions. You can increase, decrease, start and stop contributions at any time. So, if you start by investing £2000 per month and realise this is no longer feasible, you can decrease this figure to better suit your circumstances.

You also have the choice of investing both lump sums or regular payments, and you can swap funds at any time should your appetite for risk change.

Tax treatment depends on your individual circumstances and may be subject to change in the future.

Making the most of expert advice

At Wesleyan Financial Services, we understand that your business goals are unique to you. That’s why we take the time to understand your needs and ambitions as part of helping you with your investment.

Our Specialist Financial Advisers will take the time needed to create a tailored investment plan that aligns with your existing financial strategy and appetite for risk. Together, we can make the most of any surplus cash you may have and see your business flourish.

To talk through your investment options in more detail, simply book an appointment with a Specialist Financial Adviser today.

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