Investing in business: TOP-7 ways
Investments are aerobatics in business, an opportunity to increase your capital at times. Especially if it is an investment in a business. Under this concept, it is customary to understand the placement of free funds in commercial activities and financial instruments with subsequent profit.
Different types of values (property, non-property, intellectual) act as free funds. What forms of investment exist, what is their difference, as well as the pros and cons – let’s understand in more detail.
Why you need to invest in a business
Recently, a false idea has arisen about the possibilities of long-term investments. Some believe that entrepreneurs who own capital and talent can become investors. Others say that it is risky to invest money, especially in the current political situation.
This interpretation is fundamentally wrong. The investment business opens up new “horizons" for the investor: it makes him financially independent, helps him gain confidence in the future, realize himself, and provides a passive but stable income.
With the right approach, even people who do not have much savings can start investing. To do this, you do not need to have an economic education – today there are many areas that are not related to the economy.
Advantages and disadvantages
Investing in a business has both pros and cons. Let’s try to figure out what will be an absolute plus, and what will be a sad minus as part of an investment.
So, pros and cons.
- implementation of a project with a minimum capital – the investor independently determines the amount of investments that he is not afraid to lose;
- the opportunity to try entrepreneurial skills, influence the type of activity of a firm, company, enterprise;
- evaluation of various projects with the subsequent selection of an object in the area that is close and interesting;
- simplicity, convenience and accessibility of obtaining passive income, in which you do not need to have highly specialized knowledge;
- obtaining unlimited profit, the amount of which depends on how well the investment object was chosen;
- lack of framework (long-term planning) – as the portfolio diversifies, the passive income of the investor will increase;
- investment result, which is expressed in real form – it will be visible in the list of company assets.
- with minimal investment, the amount of profit will not be high – in order to receive large dividends, it is necessary to have large capital;
- in the case of partial investment, the investor is not able to influence the company’s development process, its personnel or investment policy;
- high probability of losing money – not only partially, but also completely (takes place when they are invested incorrectly);
- restrictions that exist at the legislative level, a high rate of corruption, control by public authorities;
- unpredictable development of events, as a result of which the investor’s actions may turn out to be ineffective;
- the likelihood of disagreements between partners – in the event of a conflict, one of them can withdraw from the share and take the funds;
- unstable return, which is expressed in fluctuations in the amount of income due to the state of the market, increased competition, etc.;
- the need for additional contributions, the absence of which may lead to a decrease in the level of profitability from investments made.
Forms of business investment
Investments in business are conditionally divided according to several criteria. We will analyze each of them below. So read carefully and try not to skip options.
Because some of them can serve as an impetus to your wealth.
Also Read: How to Make Money with Affiliates
By form of ownership
An investor can invest in his or someone else’s business.
In the first case, knowledge, skills and experience, additional time costs are required. Having capital, an investor is able to open a business from scratch or buy a registered company with a ready-made project.
- the possibility of self-realization;
- full disposal of profits;
- autonomy from third parties.
- high level of risk;
- great initial investment.
In the second case, the investor invests in someone else’s company, so that all risks are minimized. His personal participation in the development and conduct of operations is not required. Disadvantages – the complexity of choosing a project, the inability to influence the development strategy, the lack of real control over money.
Attention! When choosing an investment direction, experts recommend prioritizing starting your own business – this will provide an opportunity to receive regular income, the amount of which will exceed such conservative methods as a deposit or buying real estate.
Often investments in a business are considered from the point of view of equity participation, respectively – they involve full or partial financing.
With full financing, the money is the property of one person in the person of the investor. Mostly this model takes place when registering your business.
With partial financing (it is also called equity participation), the money of one investor represents only a part of the authorized capital, which is formed from several shareholders. Their format of participation is discussed in advance, the amount of profit, the range of powers in decision-making depends on it.
By funding stage
Investment is directly dependent on the stages of formation and development of a legal entity. Logging into the business can be done as follows:
- With the help of an investment project. Occurs at the beginning of entrepreneurial activity and involves the existence of a business idea, plan, working model.
- With an existing business. Implemented in the process of work, subject to prospects for additional funding.
By way of making a profit
The profit of the investor is active and passive.
Active profit implies the direct participation of the investor in the operating activities of the company, respectively – he is both a co-founder and an entrepreneur.
With passive income, the investor does not participate in the project: management functions are assigned to partners, hired personnel.
By type of investment
Business investments are divided into two groups: direct and portfolio (there is a similarity with the previous classifier). The first option involves investing your money in the project to get the opportunity to participate in its further development.
The second option involves receiving indirect dividends on a regular basis.
By investment period
The period of investment in a business can be:
- short-term period – investments with an investment period of less than 1 year;
- medium-term period – investments with an investment period of 1-5 years;
- long-term period – investments with an investment period of more than 5 years.
By risk group
According to the last feature, investments are classified into three groups:
- conservative investments that have minimal risk;
- investments with a moderate level of risk ;
- Aggressive investments that carry the greatest risk.
Attention! If the investor has not invested in a business, he should avoid aggressive investments and not rush to diversify the portfolio. By the way, in the EU countries there are restrictions at the legislative level that do not allow investing in too risky operations.
How to minimize risks in the investment business
In the traditional sense, there are two parties involved in investing: the investor and the business owner. The investor wants to choose the niche that will allow him not to lose, but to increase his savings. The owner of the business wants to attract money to the business and receive a stable income. The participants have the same goal – to minimize the risks.
Investment risks are classified into four groups:
- organizational risks – arise in the process of managerial decisions;
- legal risks – arise at the legislative level;
- economic risks – arise against the backdrop of the economic situation;
- financial risks – arise in the sphere of money management.
The risk management process is reflected in the investment agreement.
Attention! An investment agreement is a document that is signed bilaterally and confirms the fact of the relationship between the investor and the customer.
Before investing, it is important to analyze and identify the following indicators: level of efficiency, conditions of existence, probability of success, payback period. If you have a business plan, you need to check its sections for the reliability of the data, as well as errors in the calculations.
Investment business rules
To invest money, you need to understand the rules of investing.
- Rule one. You should only invest money on which you do not depend. That is, these are the funds that will not affect financial stability, and you are not afraid to lose them. In the absence of free money, postpone the idea "for later" – you should not borrow from friends or get funds from the assets of another business.
- Rule two. Business lending is not the best option for domestic realities. The practice is widespread in the world, but does not give a positive result in recent times. The cost of the grants is high, and after taking into account the interest, it is not comparable to the income that can be received. This is a direct path to bankruptcy.
- Rule three. Experts advise – do not limit yourself to one investment object. A large portfolio will provide an opportunity to reduce the risks of losses, as well as receive income with a high degree of guarantee. Do not forget about such a thing as diversification – regardless of the timing, amount or scale of the project, you need to draw up and follow a preliminary plan.
- Rule four. Investing in a business is a long-term project; a chance to earn and not lose money. Therefore, you can not invest funds that represent a "safety cushion". This is especially true in cases where a person does not have an official job, as well as stable income.
- Rule five. Until the moment comes when the return reaches an excess, you should postpone spending money for personal purposes. It is better to reinvest income in a new direction according to the “interest on interest” formula – this will allow you to experience an accelerated increase in the level of well-being.
- Rule six. In any situation, you need to maintain control over your own investments. We are talking about formal and real control. In this matter, one cannot be gullible, one should stay in the know, have tools to influence the situation. This will allow you to easily and quickly respond to changes in the market environment.
Remember! Experience, and even more so – a positive result, does not come immediately. If you take into account the mistakes of your predecessors, as well as be guided by the rules described, the chances of success will increase significantly.
5 principles of investing
- We need to aim for a long-term strategy. It is impossible to invest money and expect profit in a few hours. The investment business is designed for a long time. If we analyze stock market charts, we can conclude that the one who knows how to wait gets the return. It is better to make a plan not for a month, but for a year.
- Arm yourself with knowledge when inverting into a business. Before investing your own savings, study the market. You must be competent in a particular area – lack of knowledge can cost you a significant part of the profits.
- Always have a plan "B". According to Murphy’s law, an investor must have 3 (minimum) developments in his arsenal, including a spare:
- You should listen to your intuition. Whatever sources of information you have, listen to your intuition. Do not forget that the responsibility for actions lies solely with the investor – he must act firmly, consciously, decisively.
- You can’t rush. Decisions should not be made in a hurry, they should be balanced and prudent, without the right to emotions. It is better to stop in time – the probability of a loss is as great as profits. It is better not to lose all the money at once, but only a part. It is important to fix and analyze errors.
What areas should you invest in?
Investment business takes place in the following areas of activity:
- Real estate (residential, non-residential).
- Deposit deposits (bank, non-bank).
- Precious metals (gold, silver, rhodium).
- Currency market products (digital currency).
- Stock market (stocks, bonds, other exchanges).
- Intellectual property (inventions).
- Other types of business (startups, business projects).
Investing in business: TOP 6 ways to invest money
For those who are wondering how to invest in a business, we have made an interesting selection. Today, there are many investment options – they differ in the degree of equity participation, the starting amount and other parameters.
The first method is considered traditional in investing and involves active income. It will be necessary to invest in the project both means and forces, nerves. The advantage is that profits from commercial activities belong exclusively to the owner.
The option of buying a stake in a business is also common. The scheme is as follows: one partner invests free money, and the second one takes care of the management of the company. The degree of influence is divided individually and corresponds to the share in the business. A share agreement is being drawn up.
If you want to invest in a business, do it through startup funding – today this niche is considered fashionable. A startup is a new project, the owner of which does not have money for its implementation.
Stages of startup development:
- origin (pre-seed);
- becoming (seed);
- development (alpha);
- extension (beta);
- maturity (beta).
The investor invests and takes all the risks, and when promoting the product, he takes up to 90% of the income.
A share is a security that represents the right to a share in a company. Investing in shares involves receiving passive income, investing money through an intermediary represented by the exchange. How to make money on stocks:
- The use of speculative operations – bets on price changes on exchanges.
- Dividend payments on shares (represents a less profitable option).
Typically, a professional broker is involved in the implementation of transactions.
Investing in bonds
You can invest in a business by investing in a bond – a document that indicates debt obligations. Here the level of risk is less than when selling shares (bonds are endowed with a high level of reliability).
Their holders do not participate in the management of the company, but only receive their income in the form of interest. The disadvantage of the method is the high probability of non-redemption of securities.
A mutual fund is an enterprise whose activities are focused on investing in stocks, bonds, and other objects. Recently, mutual funds have been represented in large financial organizations in the territory: Sberbank, Alfa-Bank, etc.
It is enough for an investor to buy a share in the fund and wait until the price of it rises, and then sell it and make a profit. This method is suitable for beginners, but you need to be ready to entrust money to a broker. The minimum amount is 1 thousand 🪙.
Advantages: no commission, the ability to receive passive income. Disadvantages: dependence on external factors (exchange market conditions). This can include even a slight diversification of assets.
Hedge funds are an instrument that has recently been underdeveloped (when compared with European countries) due to a number of reasons:
- lack of a legal framework;
- lack of experienced experts;
- underdeveloped stock market.
The essence of the work of hedge funds is similar to mutual funds. The difference is that the investor receives money by speculating securities (coupons, dividends) – direct investment opens up more opportunities. The amount of profit, as well as the number of risks, is greater.
What mistakes are important to avoid
To invest in a business and get a return, you need to eliminate the likely risks. Let’s talk about common mistakes that an investor can make in practice.
- Mistake #1. The product is designed for a small audience. Most investors take part in projects whose profitability exceeds 10X. Ideas tailored to a highly specialized market gain a minimum number of customers. Accordingly, they bring not a lot of earnings for 2, maximum – 3 years. An investor should not be interested in such an approach to business, he prefers to find a niche in a large market.
- Mistake #2. Understaffed team. Before investing money, it is important to study the composition of the team, look at management decisions. In the absence of competence, you can get a return. The solution to the problem will be the search for a person for the position of "co-founder" (read – co-owner). You should not count on the work of employees, they will not fight for the involvement of the audience.
- Mistake #3. Lack of expertise. When investing in a business, you should take care of the opinion of a competent expert – he must confirm that the product is really competitive, solves a specific problem, and will be popular. For example, in Israel, investing in business are men over 35-40 years old who have experience in large companies in various positions and are aware of the problems of the industry.
- Mistake #4. Not unique product. Every second businessman claims that his product is unique – in fact, it turns out that this is not so. To avoid unpleasant incidents, you should restore trust with the investor, know the strengths and weaknesses of the business idea, and understand what information competitors have. It will be an advantage to have your own trade offer.
The economic situation makes you worry about personal savings. Investing in a business is a great choice to earn a living. The main thing to remember is that money must work. Do not be afraid to invest in a way that will bring returns.