Finance

Investing in business: the case for the brave

Investing in business

Which projects are better to invest in, how to do it and where the risk is less.

The issue of investing in business is extremely broad. It can be of interest both to beginners and already established entrepreneurs. However, we will focus on what is important for novice investors who are setting out to discover the world of business for themselves.

It is believed that investing in a business allows you to earn a passive income. This is true. But! First, the income doesn’t start up immediately, but only after a significant period of time, which will require a lot of activity for the entrepreneur. Second, not all types of business in which you decide to invest can provide a passive income. And before you take the first step in investing in a business, it is important to be aware that this type of activity always goes together with risk. To minimize it, it is important for a novice investor to “study the issue” as deeply as possible: to read various publications, take courses, collect information in the business community. And one should also get to know both positive and negative examples.

Types of business investment are most commonly divided as follows: The first type is defined by the stage of development of the business in which an investment is made – either in an already-functioning and established enterprise, or at the very start of a business. The second type depends on the volume of investments; for example, it may be equity participation or one hundred percent financing. The third type is in accordance with the right of ownership. You can invest in your business, or support someone else’s, becoming its shareholder. The fourth type: depending on the stage you decide to enter a particular business or open your own business, income from this activity can be active or passive. The fifth is about the type of investment. The type can be direct, when you invest in one company, or a portfolio, when you invest in several companies, thereby distributing the capital.

To take a risk without fear

Before you start investing, you need to understand which is more interesting to you: a manufacturing business or an enterprise that provides services. Based on this, it will become clear how large the investment should be; for example, depending on the size of the market of a city or country (or maybe you will immediately think about international business, for example, about opening a new courier company).

If you are not ready to immediately make large investments, then, after choosing a company whose business is especially of interest to you, invest in it. By prior arrangement with potential partners, you can initially invest a small amount, implying that in the future investments on your part should become more substantial. Of course, income from such investments in some distant future is not limited by anything. Here you can count on making a profit of 100%, or even more from the initial invested amount. The faster the company develops, the higher the return.

Of course, any reputable entrepreneur will immediately tell you: the main downside of investing in a business is a high risk of financial losses. You can organize everything properly, but suddenly the political climate and laws in the country change (for the worse for you), taxes rise, etc. In this case, if we are talking about risks, any force majeure is possible (including disagreement between partners). And the risks can be reduced if you are better informed and have a substantial wealth of knowledge.

Yes, the list of downsides of investing in a business is long, but nothing to be scared of. The really worthwhile thing is to arm yourself with patience. If, for example, trading in currencies on the international markets, you can quickly make money (as well as to lose everything!), then the income from investing in business, as a rule, arrives only after a significant period of time.

Your own business – or already established

However, we continue the topic – where to invest. The first option, as we have said, is opening your own business. Although this is not the best for beginners, it’s great for people who already have experience and knowledge of a particular industry or area. It is still better for beginners to work with partners.

The second. In Russia and Europe, more and more young entrepreneurs are now choosing the path of franchising. You are acquiring a franchised business, and this may be an optimal business for starting out, because it allows you to save several years and a lot of money for promoting the company. The third. It is worth taking a closer look at online business. Here we touch on another topic – “investing on the internet.” We will only say that it’s very much worth looking closer into this topic, as well as investing in startups.

Let’s go further. Investments in manufacturing business projects can be very promising if, as they say, things go well. The manufacturing sector is considered one of the most complicated. At the same time, in many cities and countries at various levels, small manufacturing businesses are actively supported, especially if they produce foodstuffs. When you have funds available, you can invest them here, in a ready-made enterprise – in order to expand it.

In Russia, for example, the purchase of bonds is quite widespread. The purchased securities are documented evidence that an investor, by purchasing them, lends money to a company. In such a case the risk level is significantly lower than when investing in stocks. This type of investment is debt-based, reliable, but it is unlikely to be suitable for a novice investor, since it requires a lot of knowledge – both economic and legal.

Whose money will be in the “wallet”

It is important to divide investments into direct and credit-based. In the second case, when choosing this or that type of business, you must agree on which banks (or financial institutions in general) are ready to support the project. An investor must have a collateral instrument and a business plan as a confirmation of how efficient the investment will be.

On the one hand, this method of investing is quite common, but still not everyone chooses it, preferring direct investments. This type of investment can be made through financial institutions (except for banks), for example, investment funds. But they, together with you, become co-owners of the enterprise. In this case, the investor must first study the issue, for example, of the creation of venture capital funds.

Undoubtedly, the topic of investing in business is extremely interesting. Yes, a person who decides to start his own business or smoothly enter into something already opened by someone else, needs to be prepared for active work, but it’s worth it. You can be on the path to an independent life – the life of a business person.

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