New challenges and opportunities: What is the best capital investment in 2021?

Last year presented many challenges for businesses due to the pandemic. Most of them were forced to change how they operated to survive, and others shut down completely. However, according to the Attitudes Survey, 90% of the UK’s businesses see new investment opportunities.

In fact, the number of new companies being set up is rising. David Bailin, Chief Investment Officer at Citi Private Bank, said, “We are entering a new economic cycle, and the prospects for wealth creation and growth are huge.”

At the beginning of March, the UK’s Chancellor of the Exchequer Rishi Sunak released the 2021 budget. He said that the most crucial factor for near-term growth is the significant boost to capital allowances, which will increase business investment by 10 %.

This year’s budget includes significant continued support for the UK economy as the pandemic’s and economic shutdowns’ impact continues. And new temporary deduction rules for capital investment stand to be a critically important decision for the UK’s economic recovery. Businesses will immediately deduct 130 % of the investment costs in plant and equipment and 50 % for other investments, including integral features to buildings.

So the need to recover from the pandemic crisis and the UK’s policies will encourage businesses to increase their capital investments.

The question is: what are the best investments?

Capital investment has two different forms. The executives can make a capital investment in their company by purchasing long-term assets of the company. In these cases, the capital can be physical assets that could enhance the company’s performance by a notable margin. Also, an individual or an entity can make a capital investment in the form of a loan. The investor can choose to earn an income in the form of repayments or profits from the invested company.

Today, I’m going to talk about the most profitable investments that a company’s executives or an individual should make in a company.

As we saw last year, the world was unprepared for doing business online. Many companies tried to adapt fast by automating their processes. A crucial lesson from the pandemic is that companies need to invest more in their digital transformation process.

Depending on the industry and the processes a business has, the digitisation process might be different. Still, its outcomes are almost the same: increased productivity, revenue, and of course, wealth creation.

By automating its processes, for instance, a manufacturer will produce the same amount of goods as before, but with fewer costs and less time. That means that productivity is increased. Hence, they will produce more, sell more, and increase their revenues. This investment will generate a stable source of income, helping the manufacturer to fulfil its aspirations. In the long term, that means that they will have more capital to invest in other sectors.

To conclude, I believe the most profitable investment a business can make in 2021 is investing in digital transformation. This investment has low risk and a high return rate. Hence, it is an excellent opportunity for businesses to thrive and for individuals or entities to invest and increase their wealth.