Investing in small businesses – Financial and Investment By priya verma

29 September 2016 Finance ≈ PersonalFinance

Investing in small business can be very tricky, risky as well as profitable. Proper and targeted guidance by financial and investment experts can be very useful and are always recommended.

India is soon going to be the startup capital of the world and this is a fact the world is vouching for. There are three main reasons which is boosting the confidence of India to emerge as the next business hub: 1) The economy growth, 2) inclination of youth towards setting up their own business and 3) initiative of the government in supporting the change. Huge investments are required to fund this massive change India is going through. Hence Investing in small businesses can be a very fruitful and intelligent move.

Today’s economy seems to be too favorable for Investing in small businesses especially in limited liability companies or companies with limited partnerships. It needs extensive research and good knowledge of the industry. Background check is absolutely mandatory before you plan to invest. Investments are basically done with two main components as the foundation:

1. Equity

Businesses needs cash to keep running. This capital is provided by equity investors. While talking about equity investments, it links mainly to buying an ownership stake in the small business. This cash is then used for the normal functioning of the business including reducing the debts, employee engagement and hiring, expansion etc.

Equity investment can lead to major gains with some speculated risks. Losses running faster than the profits can make you regret your decision of investment. To avoid such happenings and get the maximum benefits, financial advisors are always there to help.

2. Debt

This can be simply defined as a loan being provided to small enterprises to run the business. You are free from any liability arising in future. The money being granted by you in form of debt is a confirmation of interest income and repayment of the loan by the enterprise.

This format is little slow and lot of patience is required after investment for a better lucrative future. Similarly debentures also forms a part of it.

There are various factors which again decides whether Investing in small businesses makes sense or not.

i. Before investing your hard earned money in any business you need to make sure that the business has all the legitimate documents. Also it would be interesting to understand the background of the business as well as the financial health of the business. Business evaluation experts can help you do your homework and finalise a deal without a hassle

ii. Invest in the sector for which you have good amount of knowledge. This can help you in predicting the future of your investment. Your knowledge will also help the startup indirectly. This should be remembered that the business model should be robust enough to self-sustain to a good extend

iii. One should also restrict investing in the same business. Investments can also be done in various other startups also. This will minimize your chances of getting trapped with one no return business

iv. Understanding the structure is very important to check before putting in your money. Financial and tax implications, liabilities and stakeholders status are few red checks which needs to be studied carefully before making any investment. Blindly investing even in your relatives business without proper official registrations and documents can land you in trouble

v. Keeping your legal and finance expert while involving in any such deal can prove to be a life savior. They bring with them expertise in understanding the ups and downs of any industry. Legal and tax implications can be taken care by the experts itself.

vi. Patience is the key to success in this investment. Understanding the fact that you are investing in a startup and the returns may take time to come. A time period of about a year or above is required to get the returns from your investments

vii. Investment in an unplanned or untested scenario can tie up your money for long. Businesses generally burn off their investment within the first year of its establishment. In case you feel trapped or wish to move out of the investment, an Exit Strategy is must. This will not only liquidify your liabilities but also will keep you free from any guaranteed

Keeping updated information in hand and depending on the financial health of the company, you need to be thorough with your numbers and have to do your homework

About the Author

Priya Verma have a keen interest in high-tech technical offerings. An internet and tech savy, and a background of marketing and brand management, Investing in small businesses she brings with her deep understanding of benefits offered by SEO and digital marketing.

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