Why you should invest your business capital

Investing your business capital can be a smart move if you do your research and make good choices.Your money isn't being used at its maximum potential if it isn't earning you a return.You can start by categorizing your business capital in three ways -

1. Working liquid capital.This is the money that comes and goes and it must be readily available to make payments on a daily, weekly, or monthly basis.You may use these funds to pay employees, rent, utilities, or other regular and frequent expenses incurred while operating your business.

2. Semi-liquid capital.You need to be able to cover unexpected expenses and emergencies from this money.Additionally, you may be keeping payments for longer term liabilities from this money.For example, perhaps your office lease is due quarterly, your business taxes may be due quarterly, state property taxes may be due annually, and so you have the money put away to meet these obligations, but it's not needed immediately.You may also be saving for building repairs, equipment replacement, and other expenses that you know will occur at some point, you're just not sure when.

3. Long-term capital.This can essentially be anything of value, but we're just looking the liquid or semi-liquid portion of your business capital.This is money that you have to keep basically untouched to meet some state, federal, or perhaps licensing requirement.For example, in some professions you need liability insurance or a bond.The insurance company may require that you have a certain amount of cash that isn't used in order to insure you.Licenses for some professions also require a certain amount of cash held in reserve.This money can be sitting in a checking account or a CD or an IRA, it really doesn't matter as long as you don't use it and it can be accessed if there is legal action against you.

Now, to make it easy, let's say you have your money separated into the three categories listed above and in three different checking accounts.Or you even have it all in one account.Are you maximizing your potential?No.A checking account and most basic savings accounts offer some of the worst returns on your money out there.The basic checking account may be necessary for your working liquid capital because it rotates so frequently, but your semi-liquid capital and long-term capital can be maneuvered around for a better return.

For example, one of the easiest things to do with your semi-liquid capital is to put it into a CD.It isn't the highest return investment available, but it will certainly get a better return than a savings or checking account.Also, you can choose a time limit for the CD to mature.This means that if you know you'll have to pay property taxes in seven months, you put your money in a six month CD.When the market is looking for money and banks are really trying to entice you, they'll offer CD's that you can add-to during part of or all of the term and get paid your interest on the balance when the term matures.This is especially nice as you're earning interest on money that isn't there part of the time.This could be a great option for taxes that aren't immediately due, and that you are adding to with every paycheck.Choose the longest maturity date that will allow you pay your taxes (or whatever financial obligation you have) on time, as that will usually earn the highest rate of interest.You can also look into money market and other accounts that are relatively easily cashed out.

Now for the long-term capital you need to keep around.It's lazy, it's just sitting there; make it get up and exercise, it may as well be earning you some interest.Depending on the guidelines for your licensing or insurance or whatever entity requires you to have this money, there are a lot of investment options.Usually you can't put it into anything too risky so most stock and venture capital is out.However, there are options that will earn interest and some even offer tax benefits.One option takes advantage of a cash life insurance policy.You deposit a lump sum into the cash insurance account.The interest earned on the sum pays the premium on the policy.The amount you deposit is tax deductible or untaxed depending on how you work it.Additionally, as long as it doesn't violate the requirements that led you to put it there in the first place, you can borrow your money from yourself when needed, although you do have to pay it back at some point.There are additional options; long term cd's, some REIT's (real estate investment trust) have decent cash out options, investment groups that invest in a variety of items thus making your money more like stock in the group versus invested in one particular item, and thus more cashable.

No matter which investment route you choose, you have lots of options to work with.Look for options that will give you compound interest, which means you're earning interest on the interest that you've already earned.It's like a second layer of cake on top of the frosting on top of your cake.The point is, make your money work for you.If you only earn 2%, that's still more than zero, but odds are with a little research your money can make a lot more.