There are nearly half a million new businesses that find their beginnings every year in the United States. These businesses start up, but almost half of them fail because trying to find the right funding often crashes. Without the right funding, a business has fallen at the jumping off point for their beginning. You could one day find yourself in a position where you are able to invest in a business, and if you have the chance to pour your money into a new start-up, you need to think carefully before you get going.
As an investor, you have to consider the business value, the liability risk of the business and your exit strategy should things just not pan out the way that you hope that they do. There is a huge difference between investing your cash in a business that specialises in construction materials, and one that specialises in oil water separator technologies. Both are fantastically sustainable business ideas, but there are still some basics that you have to be aware of before you cement your investment into a new company. We’ve got four of those things you need to know below:
Beware of the opportunity that has presented itself. The reason you have to beware of it, is because there may be a reason no one else has invested in the business yet. Usually, if a business is trying to earn money, it’s because the bank has turned them down. As a possible investor, it’s up to you to ask them why they were turned down. Obviously, the inability to secure finance doesn’t mean the business is doomed to fail. It could just mean that the business idea is too risky from the point of view of a bank and requires someone with some grit to make it happen. That could be you.
Understanding the business structure is important. You have to be fully aware of the structure of the business before you sign on the dotted line. You need to ensure that should the business fail, as half of all businesses do, you are not personally responsible for unpaid bills or debts that the business may have. Always create an official agreement, even if the business that you invest in is from a friend or a family member.
You may not see a return right away. A new business can take time to gain a profit, so if you are hoping to earn an immediate profit and gain back your investment, you may need to adjust your expectations. You could be waiting three to five years for a return, so consider your opportunity carefully before putting your money out there.
Do your homework and do it carefully. Research the directors, the staff, the business idea and the industry. You need a thorough understanding of how the business could progress before you place your money into it. Then you need to think about how your investment will come back to you. Once you’ve done your homework, you can make a more informed decision about how to proceed.
It’s always risky to be an investor, but it’s a fantastic way to expand your own knowledge and portfolio, and you can give back!