There were over 30 million small businesses in the US in October of 2020, and this number has likely grown since then. Statistically speaking, that means every tenth person in the US owns a business.
How to Get Started with Investing in a Small Business: With so many options to choose from, it’s not difficult to see why investors often treat the small business market as a fishing hole. There are countless options, and each one of them could turn out to be a gold mine.
How does one get started investing in small businesses? Are there any tips or tricks to it? We’ll talk more about that and offer some advice in this article.
Method of Investing
The first part of an investment strategy is to decide how to invest. There are a few different ways to invest in a small business, with the two most popular being equity financing and debt financing. Out of the two types, Key Capital specializes in equity investing.
Equity financing involves putting money into a company in exchange for a portion of the profits and influence in the company. Debt financing is a form of financing where you provide a loan to a company in ex exchange for repayment and some amount of interest.
Before investing in anything, you’ll need to find a company to invest in, preferably a local company. Finding the right companies will require some research on your part.
The best place to start is with small businesses, preferably newer businesses, since they’re just starting out and more likely to need investors. Part of this is because of the steep learning curve that comes with starting a business. Roughly one-fifth of businesses close within two years, and just over half make it past five years.
Approaching the Owners
Looking into the company is important, but an outside perspective will only get you so far. Seeing as you’ll have to talk to the business owners eventually, it can’t hurt to approach them as soon as they become a serious candidate for investment.
When talking to business owners, the key thing to keep in mind is that you’re not in charge. It’s their business and their choice in which direction it goes. This means there’s no real chance of changing their ideas or business model, so if your beliefs and personalities don’t match up, you might want to invest in another business.
Investing in a business that shares some of your values and motivations will make it much easier to help the business owners and the business itself to keep going in the right direction.
Investing in Small Business: The How and Why
Investing in a small business can be a very lucrative move for the budding investor, but starting out isn’t as easy as it sounds. We’ve offered a few pieces of advice in this article, but there’s a lot more to learn about investing.