As an individual, choosing how to invest your money (jump in on GameStop? Hmm, maybe best not) can be stressful. But as a business owner, making investments on behalf of your company can be a make-or-break decision that, understandably, requires significant time and consideration.
Although investing as a business is risky and difficult, it’s also vital to strengthen your company’s financial viability and to grow. Here’s a look at the key risks when making investment decisions on behalf of a company, and how to mitigate them.
Risk #1: Financial Loss
Financial loss is, not surprisingly, the number one concern for business investments. If the risk of financial loss seems too high, most investors will back away from the opportunity. The priority for your business is growth, of course, so this creates a catch-22: a significant financial loss can damage your company’s chance to expand, but you can’t grow without investing.
Financial loss can occur as a consequence of many factors, such as:
- Your investment will be worth much less in the case of inflation. Particularly due to the coronavirus pandemic, this is something to be extra cautious about right now.
- Interest rates change.
- Your company’s credit is at risk.
- Currency risk in international investment situations. If your company decides to become a stakeholder in an international company or to expand overseas, currency risk is high.
Weighing up the risk of your investment requires consultation with outside financial experts who can assess your financial situation as a company and advise on the best course of action.
Risk #2: Security
A second important risk to consider is security threats. Breaches or failures in security can be catastrophic for the outcome of your investment and brand reputation, and even prompt lawsuits.
In industries such as finance, payments, and cryptocurrency, much of the risk lies in cybersecurity. Cybersecurity breaches from advanced hackers can devastate your investment and leave your company in the red. That’s why it is crucial to use a registered crypto exchange, for example, when investing company money into digital channels.
Risk #3: Political Implications
There are always political implications to your investments, even if these aren’t clear at the outset. In the age of social media and global digital news media, companies are far more vulnerable to close examination of their investments.
Take the cosmetics and ethical health products brand, Lush. Lush is an international company worth over a billion dollars. Last year, Lush was discovered to have donated thousands of dollars to an anti-trans pressure group, causing many of its customers, who mainly consist of young people, to turn away from the company and shop elsewhere.
In the age of ethical shopping, or what’s called “voting with your money,” companies should be careful where to invest their money based on political implications.
Any decision worth taking involves risk. Risk can’t be avoided in business, but by assessing the risk level for your company, you can make much smarter investments in the future.