The opportunity to invest in a small business is the opportunity to get in “on the ground floor” so to speak, the very beginning of something big. Investors that invest in small businesses have the chance of seeing their investment grow into something very profitable for both themselves and the business they invested in. If an investor has vision some great investments can be made in startups and small businesses around the world.
The first principle, however, in investing in a small business is to never make an investment you cannot afford to lose completely. Many small businesses fail within the first year they are created. This means that any investment that one makes should be expendable so that in the event the business fails the investor is not hurt. It is good strategy to use extra money, such as cash, for these investments and be careful not to pull it from important accounts such as college funds or retirement.
Next, it is important to do your research. Know the small business that you are investing in. How long has it been in business? What is the demand for its product or service? How does management function and deal with the labor force? What does the investor know about the industry and can they make a good judgment call on the validity of the business? All these questions and more should be investigated to give your investment the best chance at growing. Check out the Disclosure Document if there is one and gather all the financial information on the company that is available. The future of the company should also be contemplated. Will it go public soon? Is it in a growing sector? Remember that the investor makes their money when the company goes public and shares are available for sale. A company that will not likely be going public for some time may not be the best investment at the moment.
Lastly, plan an exit strategy. Whether the small business booms or falls flat on its face, the investor should have an idea regarding how they plan to exit the relationship. The ability to liquidate the asset is an important one so an investor should plan on how, in either situation, they plan on handling the extrication of their funds.
Investing in a small business provides tremendous opportunity. However, with that opportunity comes a tremendous amount of risk. In some cases, seeking the assistance of a larger company that invests in small business like Advantage Capital Partners might be a solution, as opposed to an individual. Investors should evaluate the money they are investing, research the company, and have a good exit strategy in place before they delve into the world of small business investment.