Best short term investments for small business

Small businesses need to make money to keep their business running. Besides making money through their goods and services, businesses can invest their money to make more money. There are a lot of different places where a small business can invest their money. Short term investments have a lot of advantages for small businesses.

What are short term investments

A short-term investment could be an investment made for several months or even for several years. Generally, however, an investment made for anything less than three years is considered a short term investment.

Why short term investments

The purpose of short term investments is to make the most money in a small amount of time with the least amount of penalties and risk. These short term investments can be turned into cash or rolled over into other short-term investments. They can even be rolled over into long-term investments.

Short term investments can be used as some sort of buffer against having to liquidate your long-term investments if there is an emergency. This is very important to small businesses because since they are small they may have limited amount of extra cash and may need to be able to reach their extra money at anytime. Short term investments are better than having cash on hand. Having cash gives a business no interest, but having the business's money in short term investments will increase profit and can be reached in case a problem arises. Short term investments are best for small businesses since it helps them increase the money they have on hand, while allowing the cash to be reached at just about anytime.

Short term investments can help a small business earn the money they need for a certain project instead of going in to debt.

Things to know

Businesses should make sure that they are not making short term investments that have high risks but low yield. Investing short-term in stocks is not a good idea for businesses. These investments have high risks as well as tax consequences if the investments are made for less than one year.

Treasury Bills (T-Bills)

Treasury Bills, or T-Bills, have fixed maturity times and interest rates. The inconvenience of these investments is that if the money is taken out before the maturity date there is a penalty. T-Bills are possibly the least risky investment that a small business can make.

Certificates of Deposits (CDs)

Certificates of Deposits, also referred to as CDs, are essentially savings accounts that are similar to T-Bills in that they also have fixed maturity times and interest rates as well as the penalty if the money is taken out before the maturity date.

Money Market Mutual Funds

Money market mutual funds pool the resources of several investors to invest in money market securities that have very large denominations. Though the yields from money market mutual funds are usually lower, the business can usually have access to the money when they need it. These investments usually require a minimum balance.

Penny Stocks

Penny stocks could be a good option for small businesses looking to make a short term investment. Penny stocks are very inexpensive because they are stocks of very new companies. If these companies grow quickly, then their stock follows. The small business should then sell the stock and will receive a large return. As long as the small business is willing to do a lot of research and take some risk, penny stock could be a great way for small businesses to make money.