Every business is an economic activity, which is operated for long term to earn high profits. Investment helps a business to generate more cash to smoothly run the operations of business. But a business can successful only then when it makes its investment decisions wisely, which leads a business towards success and earn high profits. If a business is not properly or wisely investing its money then It will face loss and can’t survival for long time.
Investment
Investment can be defined to put money or finance in some project for the sake or generation of return on the investment.
Purpose
Purpose of smart investment is to utilise finance properly and reduce Risk with high return rate on investment without remaining the cash ideal.
Things take care while a business is investing
- Amount of risk a business is facing
- Dividend policy of a business
- Assets and liabilities of a business
- Other investments of a business
- Income sources or share capital of a business
- Financial strength
- Investment opportunities and threats
Smarter investment decisions for a business
Smarter investment decisions are those decisions of a business, which are properly analysed while making investment into any kind of project in a business.
The smart can be defined as
- S- Specific
The purpose for which an investment is made must be specific. forexample: – investment in technology to produce more effectively and efficiently product.
- M- Manageable
The investment which is about to made must be properly planned, organised,coordinate and control, the business which is making the investment must be knowledge about the various aspects of that investment.
- A- Achievable
The investment goal must be possible to achieve for a firm , for example I want to invest $500 to earn the return 10% , thus it is an achievable goal. If a business targets that it should invest 200 to earn return @50%, thus this is impossible to achieve.
- R-Relevant
The goals of the investment must be related to the goals of the business.
E.g. A ltd. Invest $300 into z ltd. To acquire the business of Zltd. Thus, it relates to the goal of business i.e. expansion.
- T-Time bound
The investment which is made should for a specific time period.
e.g. google invest in reliance for 10 years.
If any of the investment in business has the above written elements is called smart investment.
Strategies for smart investments
1.proper analysis:-
The smart investment decision’s first step is the proper analysis .one has to proper analyse the all opportunities and threats in any investment which he is deciding to made. The other thing that a person should also find different alternative investments and evaluate all these alternatives on the basis of risk, return, time period and terms and conditions of the investment. If we made our investments of business with proper analysis then there are less chances of failure of investment decisions and we can invest in a way which is less risky, provide us high return and accurate for our business .
- Consider time period:-
The take care of time period is also involves smart decision making in business. Sometimes business organizations don’t take care for the period of investment and invest their money into projects required large investment for a long time period. The time period is considered that we can select time period as per the financial condition of our business, if business has small financial strength then we have to invest small amount for a small time period that we can earn interest and also reduce our risk .on the opposite side, if a business has more financial resources then it can invest for long time and a long amount of money. At the end, the time period of investment is dependent on your business’s financial strength and resources.
- Cash cycle:-
If any business wants to generate more revenue with the investment, then it should invest in such a way that it can easily maintain its cash cycle or working capital cycle . If with the investment a business is smoothly runs its cash cycle then it is best investment strategy for a business . The business should try to run its cash cycle without any pause with its investment that the business can utilise its cash effectively without remaining its cash ideal. If the cash cycle of a business is smoothly runs, then the business is earning properly and utilises its cash in best way.
For example, Mohan a business man draft a bill of exchange 0f 2000 for 3 months to sham. He purchased treasury bill for 3 months .He can pay to sham from the amount of treasury bill at maturity date and also earn return on his investment .
- Never put all eggs in one basket (portfolio management):-
A smart business man never do this mistake at any cost. The smart business man makes all types of investment for short term and long term and of high risk and low risk. These combination of investments divides the risk of a business man and if any one investment faces loss, he can earn profit from the other investments.
For example, A ltd. invest his money in stock exchange, treasury bill and bonds. Suddenly, rate of bounds are fall and stock shows profit ,then A ltd. Is escaped from huge loss as if it puts all of its money in bonds, then it may get higher loss.
- Future oriented approach:-
A business should invest in that investments which are highly demandable in the market , these investments may be provide the less return to a business but these can be sold anytime as these are in demand. On the other hand, a business doesn’t lure for the high return and invest its money in those
projects which are not profitable in future. Sometime some projects shows profit at initial stage but at end they occurred loss and destroyed the whole financial structure of a business. You should always invest in the companies which are at top level regarding the return on investment.
For example, a business is thinking to invest in some kind of bond which offer high return but not demanded in market . On other hand, there is gold bond which has high demand in market but has less return then other kind of bond, so the business should prefer to invest in gold bond.
6.Investment provides opportunities:-
A business should always invest in the sources which provides it opportunities to grow in market and expand. These investments may be of collaboration and equity shareholder in any company . In future we can take decision in that business that we can also grow our business with help of that business . We can also collaborate our business to any business which is profitable in future. We can also buy any company or firm which provides us growth in future.
For example,
- Facebook invests into Instagram and WhatsApp for the sake of more expansion.
- Google purchased the shares of reliance.
- Reliance purchased aircel and converted it into jio.
7.Consider resources of finance and strength:-
If you are investing for a long time period into any project, then you have to be under strong financial resources which will capable to handle your long term investment well. You should take care that your financial resources must be strong and enough capable to handle the uncertainties and ups and downs of the investment. These resources are also fully utilised to cover-up other operations of a business. So for long term investment the resources of a business must be certain and for the long period.
For example, a business has $3000 share capital for 10 years ,it make investment of $1000 for 6 years in an other business, then the capital of $3000 is fully cover up the uncertainties of future of its investment of $1000.
Benefits of smart investment decisions
- utilisation of finance
- well operated cash system
- Reduces Risk of investment
- higher return
- smoothly operations of business
- long run survival of a business
- growth and goodwill
- cover up future uncertainties
Conclusion
At the end, if a business is making smart investment is fruitful for a business . If a business is properly utilising its resources and makes high returns on its investment.The cash of a business doesn’t remain ideal and generates revenue for a business. A smart investment of a business takes care ofthe resources and financial capabilities of a business. The businessman and financial mangers analysis each and every investment deeply and prepare the portfolio for the investment in a smart manner that the investment can smoothly help to operate cash cycle of a business, generate more earnings andensure the growth of the business. A business has enough resources of finance that it can easily handle risk of its investments and can pay money to investments whenever it is needed. Every business whether small or large need to invest in best way for the long run of business.
