Is Investing in Small Businesses a Smart Idea?

It is a known fact that America is supported by small businesses and has been almost since the time of its inception. In fact, corporations didn’t come into vogue until around the mid to late 1800s. But although corporate giants do make a lot of money, almost 90% of the businesses in the United States are considered small (employing less than 100 people). So while you can make a lot of money when you put your money in a corporation, investing in small businesses can be just a lucrative if you pick the right ones at the right time to partner with.

The key factor here is picking the right businesses to invest in. This would be true even if you wanted to put your money in a large, well known corporation. The first step to determining which small business to partner with is to learn how to read financial statements. In order to make money investing in small businesses, you need to find ones that are doing well and will provide a return on your money. You need to see if they are growing, how they are handling their money, and whether the company is turning a profit. If any of these things are off then you may not want to partner with them.

Statistically, about half of all new small businesses fail within the first two years and most that make it to their second anniversary don’t live to see their fifth. So no matter what anyone may say, investing in small businesses is risky. You want to check the company’s business plan to see what they are doing to ensure they are going to be around long enough for you to get a good return on your investment. In addition to that, you’ll need to take a look at the market they are in and the experience of the business owner to get a full picture of their chances for survival.

A final but important measure you must take when investing in small businesses is making sure you have an exit strategy in place. This is particularly important if you are only investing for a short time. You need to know how the business’ assets will be liquidated and how they will settle their debts should the unthinkable happen and they go belly up. Although you want to hope for the best, you should be prepared for the worst.

Investing in Small Businesses Can Aid Local Communities

Everyday there are many new small businesses that open up shop. Since starting a new business can require a lot of time, effort and money, many small ones require much help to get started. One of the main ways they need help is financially. For those who are considering investing in such businesses, this can be a positive thing. Many investors choose to invest in these type of businesses for varied reasons. Some want to contribute to helping increase the economy and by investing in small businesses, they are doing that in a beneficial way.

Many times an investor will find that by investing in a business in their local area, that their money can help others in the community. By helping a local business get started or stay afloat, they are able to help others with employment as well as encouraging the local dollar to circulate in the community. This can be beneficial to the community as a whole, while it bringing in a good return on one’s investment.

Of course, as with most investments, an investment of this type can be extremely risky. One should not invest anything they cannot afford to lose. Sometimes it may be wiser to invest in several smaller ones rather than one large one, especially if one is planning to make a substantial investment. There are many things to consider when considering a business for investment. One of the primary issues one should consider is whether the product or service is viable for the area or customers it will be offered to. It is important to determine if the product or service is not only needed but that the business is actually capable of producing it. Much information can be gathered from the company’s reports such as their marketing plan and business plan. However, it is also good to meet with the management team and find out directly from them what their plans are and how successful they feel they will be in achieving them and why they feel that way. Much of the success of a business is based on management so it is good to know what their experience is the field as well.

All investments carry risks, but investing in small businesses can be a bit more risky than others. But, unlike some other investments, by making an investment of this type one can not only acquire profits for themselves but they can also add to the economy and help in the local community by providing aid to a business who will help in providing employment and other benefits to the local area.

Investing in Small Businesses – How to Start Investing in Small Businesses

Investors are always on the lookout for new opportunities. They seek to diversify their portfolio and include a good mix of stocks and bonds. They also like a healthy mix of high risk and relatively safe investments. Some may choose to invest in alternative investments like micro loans, green investing or collectibles, while others prefer the riskier route of investing in small businesses, IPOs and startups. In fact, having a mix of investment options is the best way to minimize risk and diversify your portfolio.

Finding ways to start investing in small businesses can require some digging on the part of the investor. Many owners do not know how to get the word out that they need capital to expand, to move into a bigger building or to invest in new equipment. Most go to their local bank for funds to borrow, which may even be insured by the Small Business Association (SBA). Unfortunately, many banks do not provide 100% of the money needed. They expect the owner to use their personal reserves or to bring an additional investor to the table in order to protect the bank’s interest.

As an investor, you need to let your local bank’s commercial lending department know that you are interested in investing in small businesses. A bank will have already down their due diligence and researched the company requesting a loan. If a loan officer knows that you have the extra cash to invest, they might approach you with hot deals that need additional funds. Another option when searching for investment deals is to contact an area business broker. The broker knows which small companies in the area are selling and which could be persuaded to stay if there was an influx of cash to expand and support future ideas.

Investing in small businesses is also a way to use your investment money to help support the local economy. Such owners usually hire local employees who stop for lunch at local eateries and spend their paychecks at local shopping centers. The money invested makes a nice profit but the reward of helping many people can be far greater. Overall, an investor needs to diversify their portfolio to spread the risk of their investments over several different types of investing. Helping small businesses by investing in their future not only helps the local economy but also helps the investor’s bottom line.