One of the most famous ways to invest money is investing in a business. Many business areas allow potential investors to choose the most appropriate and promising investment option, focusing on their preferences and expert opinion. It is worth noting that not in all cases it is necessary to have a lot of money to make a profit. Even modest contributions can generate significant returns if the project is successful.
Fundamentals and types of investment in business
There are several types of business investment, which are distinguished by:
- investment stages - in a business that has just started or in an already promoted company;
- the volume of contributions - equity participation or full financing of the project;
- by right of ownership - investments in one's own or someone else's business;
- according to the forms of profit - income of an active or passive nature.
Also important is the type of investment, which can be direct or portfolio. In the first case, the investor invests only in one company, and in the second case, he distributes his funds among several organizations, forming a kind of portfolio.
Information diagram of the main strategies for investing in a business Why you need to invest in a business
If a potential investor has a certain amount at his disposal, then the most rational decision would be to invest in business projects. Such actions will ensure a comfortable existence for both the most risky investor and his entire family, if everything is done correctly.
The mentality of the majority of our "Soviet-style" citizens is limited by various prejudices. They do not believe that it is possible to make a profit without investing fabulous funds, and without having special talents in the economic sphere. But these postulates are erroneous and have not corresponded to reality for a long time. Even a small amount of money can "work" for the benefit of its owner. To understand and accept this, you need to change your thinking and stop working "for your uncle", opening your own horizons in the field of entrepreneurship. If you invest in a business created independently and from scratch (own business), you can get the desired feeling of stability, confidence in the future.
Investing in a business: pros and cons
Of course, any investment process goes hand in hand with risk (however, like all existing types of investments). But, as you know, those who do not take risks do not become an investor, do not get a chance to improve their lives, and continue to work "from pay to advance".
Investing in a business has several benefits:
- The ability to choose any direction from those that are most interesting and familiar.
- There are no income restrictions. In other words, you can expect to receive a profit of 100% or more in excess of the initial investment. The faster the company develops, the higher the level of financial returns.
- There is no need to have a large initial capital. Even a little money can help you make good money.
- The investor has the right to directly influence the activities of the company in which he invested funds (if the type of deposits is not bonds). In some cases, the investor takes control of the organization into his own hands, increasing the income item.
- Visible return on investment. The company's assets reflect the results of investment activities.
- Ease and availability of passive income through investing in business projects.
At the same time, it is not necessary to have special knowledge and skills in the field of investment. Such an activity is a great way of self-realization. You can create your own business from scratch and subsequently be proud of your "brainchild".
Disadvantages of investing in a business:
- High risks of financial losses. If the business is organized incorrectly, then there is a high probability that part of the funds (and sometimes all the capital) will be lost.
- Corruption in the country and a large number of legislative restrictions can cause slow business progress. Restrictive acts, inspections of regulatory authorities, fiscal services sometimes cause the collapse of even the most successful business.
- For active investors, having a certain knowledge in the field of economics is necessary in order to maximize their income.
- Unstable return on investment in business projects. Many factors influence profitability. Having absolutely identical initial conditions, you can get different income in the end. Therefore, it is so important to actively study the market and adapt in time to its changing direction.
- Discord between partners. In some cases, when the conflict between investors reaches its climax, one of them goes out of business, taking his funds. Such actions negatively affect the profitability of the entire enterprise.
- The need for patience. You should not count on momentary enrichment, because it takes some time to get more or less significant profit.
It is also possible the occurrence of various force majeure circumstances. In addition, very often business projects require regular cash injections. If this is not done, then you can get a decrease in the profitability of project investments. However, do not be afraid of such an impressive list of cons, because these are more warnings than a pattern.
Ways to reduce the risks of investing
Two interested parties - the business owner and the investor - want to receive income and minimize all kinds of risks as much as possible. The owner of the company wants to attract more investors and keep them, and the investor wants to save his money and increase it. There are several main investment risks:
- Organizational - not properly organized business;
- Legal - lack of legal confirmation of the fact of investment by the investor;
- Financial - ignorance of the basic rules in the field of economics, which entailed losses;
- Economic - an unstable state of the economy.
If you use the services of lawyers at the initial stage and protect your investments with documents, you can avoid the influence of the legal aspect. It is also necessary to adequately assess the economic efficiency of the current project. It is recommended to carefully study the field of activity in which a particular company operates. If a person is absolutely ignorant in a certain area, then he should refuse to invest in such a project. To increase the chances of success when investing in a ready-made business, it is worth visiting the office of this company, talking with employees, assessing the general situation.
Top 9 ways to invest in a business
- Creating "your" business. This method is suitable for those who have basic knowledge of the rules of doing business, understand the economy, at least at the initial level. The presence of the notorious "entrepreneurial streak" is also welcome. In this case, you have to invest not only your money, but time and mental strength. It is difficult to call this method passive - it is an active type of activity. In addition, you should not count on a quick return. However, one of the clear advantages of investing money in your own business is the undivided ownership of all profits. Owning a business is a dream for many, but not everyone can achieve it. You will have to invest finances, time, soul, experience, knowledge, before resting on your laurels.
- Become a franchisee. Buying a franchise business allows you to save several years that would have to be spent on promoting the company. In the case of a franchise, the entrepreneur receives a ready-made business with a recognizable name. What are the advantages of this way of investing in a business:
- Advertising costs are kept to a minimum;
- Few expenses;
- Availability of professional support and advice from the franchise owner;
- Payback comes very quickly.
In some cases, the franchise owner helps with staff training, decoration of a commercial or industrial premises, and provides ready-made equipment.
- Online business projects. Today, investing in a business in this way is a very popular investment option among modern investors. The webmaster creates his site, fills it with unique content, monetizes it by selling ads. This is a very effective method of selling information online. If the investor is an expert in any field and can offer site visitors copyrighted content, then the success of his site is guaranteed. Topics for articles can be very different - from legal advice to acne problems on the face. The organization and conduct of online seminars using web programs are also very relevant. You can buy a ready-made site and keep it afloat by periodically adding new publications, while selling contextual advertising in parallel.
- Startups? Why not! Finding a promising project is not so difficult. Many startups have only a good idea in their arsenal, but do not have the money to implement it. Investors in this case take on all the risks of implementing the project and invest their money in it. The author gets about 10-15% of the income. This way of investing can equally well both "get rich" and ruin an investor.
- Buying shares. Successful and not so successful companies sell their shares through the stock exchange. A share is a title security in which an investor is entitled to some portion of a company. How to make money on stocks? You can buy securities at a low price and sell them at a higher price. However, before buying, you should carefully study the financial condition and reporting of the company, because the security of not every organization can make a profit.
- Investments in production business projects. An investor invests his finances in a factory or plant for the production of any goods. First, you should study the profitable part of the enterprise, its competitiveness and compare the likelihood of a return on the money spent. If the company has a stable position in the market, then a return on investment is more than likely. It is best for a novice investor to invest in factories that produce mass-market goods, which are engaged in the manufacture of essential products.
- Investing in small business. Small industries and firms that are not part of any corporations and associations can be a good investment. You can invest in a ready-made enterprise and expand it, or you can invest money in a business from scratch. These methods will be effective if you choose the right direction.
- Purchase of bonds. These securities are a kind of documented evidence that the investor, by purchasing them, lends money to the company. This is one of the ways entrepreneurs borrow funds. The level of risk in this case is much lower than when investing in stocks. This type of investment is debt and is considered a more reliable way to generate income. Bond coupons are paid regularly. Sometimes low credibility companies offer very high coupon rates to attract more investors.
- mutual funds. This type of investment is classified as direct. An investor buys a share in a fund. He, in turn, invests the funds received at his own discretion, taking into account diversification risks. But this way of investing money is highly dependent on stock market crashes. The investor does not in any way participate in the activities of the mutual fund, shifting all responsibility for the success of investments to its managers. It is worth noting that no one needs to pay commissions. The difference in the share price is the profit or loss.
It is impossible to call investment in a business an absolutely safe way to earn money. But if you approach this matter clearly and competently, calculate the possible risks, involve reputable specialists in the matter, then you can manage your money well and get a source of stable income, which we all dream of.