Investing in small businesses provides you with a great opportunity to grow your wealth. In fact, this type of investing can actually net returns higher than what you would get if you invest in publicly traded companies.
What Do You Need to Invest in a Small Business?
Investing in a small business will require either lending capital or the ability to buy shares. Either way, you will earn a return on your investment through appreciation, dividends, or interest.
Providing capital means you will pay the business a loan that is repaid over time with interest. This is referred to as debt investing. Buying shares, on the other hand, grants you ownership in the company, which not only entitles you to a portion of the company’s earnings, but you will also benefit from any expansion as the shares increase in value. This is known as an equity investment.
How to invest in a small business: Hire a consultancy like Key Capital
Investing can be a minefield if you’ve never done it before, which is why hiring a consultancy service like Key Capital is essential for guiding you through the process. Once you’ve hired us, we will:
Find Companies
The first step to investing in small businesses is to find companies that are seeking financing. Not all companies are open to investing, which is why it is important to use a consultancy like ours to find the right investments for you. Many companies are unwilling to give up a portion of their company, while others are not able to take on any additional loan payments.
Meet with Company Leaders
Once we have found a suitable small business for you to invest in, the next step is to meet with the company principals. This helps determine how they intend to use the financing and what they hope to accomplish.
A significant amount of time can be spent meeting with company leaders, which is why having a professional consultancy to help facilitate these meetings can help gauge the overall suitability of the company for investment.
Conduct Research
Next, we’ll closely investigate the potential viability and financial standing of the company before we recommend the investment. We will take the time to review their books, look at any market studies for the products or services they sell, and check the status of any outstanding loans. In some instances, we might also run credit or background checks on company leaders.
The research stage is quite a time-consuming task and benefits from the use of industry tools and software. To expedite this process, our professional consultancy use industry-specific tools for research.
Agreeing on the Terms
Finally, we go over the detailed outline of the offer with the company leaders. Once everyone is in agreement on the main points, we can begin working out the finer details. Negotiations can be tricky to get right, which is why having a professional consultancy in your corner can help.
Close the Deal
Once the leaders of the company are in agreement on all the terms we have outlined, we are ready to close the deal. At this time, all of the agreements will be signed and you provide the promised capital. You now own shares in the company or hold a signed contract outlining the specifics of a loan.