Finding new investment opportunities that will be profitable with a fairly low risk can be as much of a challenge for you as an investor as it can be for a budding entrepreneur or startup business owner. In fact, you may not realize that as an investor in this situation, you actually have more in common with a business owner than you may think and possibly have a higher risk since your primary contribution is the money you invest, while the potential business partner will typically have brought other assets or skills to the venture that may or may not have monetary value. As an investor, it is important to consider firstly, the type of role you wish to have in the business you choose to invest in and also consider the partnership using an analysis of the type of company, its structure and its existing business plan to determine its expected profitability and risk. So for all investors looking for entrepreneurs and new business opportunities, here are our recommendations in order to make the partnership successful.
Steps To Invest In The Right Business
1. Your Role as Investor
When you choose to invest in a business whether it be a new startup or an existing company, you will assume a role as a partner since your investment will serve as a contribution towards funding the business and assuring its existence. The type of partnership however, will fall into one of two types: the silent partner or the active partner. As a silent investor or silent partner, you don’t typically have a role in the day to day operations of the business. Your primary contribution would be to provide the funding for the business or the capital to help it grow in exchange for convertible debt or the opportunity to own a profitable part of the business in the long run. An active partner, on the other hand, has an active role in the daily operations of the company and will contribute some skill or expertise to the business as well, for example business development, programming, design, etc. In addition to this, he may also have invested financial resources in the company, in which case he would be considered an active investor. The active partner then, could be seeking a business partnership where he offers solely his skills or alternatively, he could be looking for a partnership where he brings both his skills and his capital to the table.
2. Choosing a Business to Invest In
Choosing the right business to invest in does require a little bit of research and due diligence. Once you have determined what sort of role you are seeking, you can then figure out what type of business you’d like to invest in. Consider if you are interested in investing in a startup business or one that is already existing. Is there a specific type of industry that interests you, for instance, a restaurant, a retail store, or a consulting firm? Perhaps you’d like to invest in a business that is owned by women, or a start up by a minority? Take the time to check out your options and do some research on industry trends and predictions. The more information you have about the industry, the competition, and the future landscape of an industry, the better prepared you will be to make a solid decision.
3. Assessing the Business Investment
Once you have found a business that interests you, it is important to consider the following factors to determine your potential risk and gains. Firstly, take a look at the business structure, in particular, the management, their past experience, and management style. Next, evaluate the product or service in terms of its relevance to the consumer. Does it have a track record of profitability? Is there a customer base? As part of your due diligence in researching the industry, consider the competition: are there competitors and if not, is there any intellectual property involved, and how long might it take for the service or product to be copied? No investment would be sound without examining the potential profit so take a careful look at not only the prospects for profit but also the current financial situation of the business including outstanding debts, previous investments, and how much time would be needed for the business to begin generating profits. Finally, a careful assessment of the current or proposed business plan can give you a relatively solid idea of all aspects of the company and it’s strategies. If the company already exists, you will want to consider the potential for profit as a primary factor. If it is a new business, the potential for growth is probably of greater importance. Be sure that the business plan is well written and is realistic in terms of its goals and strategies.
4. Making the Partnership Work
Once you have determined that the business is a viable investment and you want to become a partner, there are ways to ensure that the partnership be as productive and profitable as possible. It is absolutely essential that the business partnership should be drawn up with formal, legal papers. A partnership agreement that has been written with the help of a lawyer or other legal professional will serve as a binding contract that can be upheld in court should a problem ever arise. It also will serve as a guide for the partnership and can help avoid conflict and liability down the road. Good and open communication is necessary for all healthy relationships and business partnerships are no exception. Maintaining an honest line of communication is not only in the best interest of the company but also for both the business owner and the investor since both have a stake in the outcome. Defining roles is also essential to eliminating the potential for disagreements and misunderstandings. It will also give the business greater structure which in turn makes the business more solid, and will decrease the potential for losses. Investors and their business partners should also regularly review their business and gauge whether there is room for improvement, what has been working, and whether they still have the same goals. Pay attention to your instinct on matters that you might be unsure of. Generally, if something doesn’t feel right, there could be a good reason for it so don’t be quick to dismiss your reservations about something business related.
Investing in a business is an excellent way to put your money into a potentially high yield business and at the same time, gain an active role as a business partner. With some well researched preliminary work, continued planning and by taking an active part in maintaining your interests in the business, both business owners and investors can build a winning partnership.