Business investment is an investment of capital in someone else’s or own entrepreneurial project with the aim of making a profit. A competent approach and the right choice of direction will provide the investor with passive income for a long time. At the same time, it is not necessary to invest large assets; investing in a business is possible with small amounts. Stable profit received in the form of dividends will ensure financial independence and a comfortable future.
Investing has great potential. But a person planning to invest his own funds in the development of an entrepreneurial business should be aware that this type of activity does not imply a quick profit and lightning-fast return of capital. Therefore, at the initial stage, it is important to study promising directions and make the right choice.
Capital investment in a business is carried out in two main forms:
- credit investment;
- direct attachment.
Attraction of banks or other financial organizations for investment is used for credit investment.
For a positive decision, the investor must provide guarantees of efficiency and a clear business plan. In most cases, such loans are issued using a collateral instrument. Direct investment involves the funds of a private investor or organization (investment fund).
Where can free assets be invested:
- Own business;
- Franchise business;
- Share in the company;
- Mutual funds;
- Hedge funds.
When investing in your own business, you should count on income in the long term. The development of the company will take a lot of time, effort and hard work. When it is difficult for one to open his own business, you can become an owner-investor by investing in a share. In this case, there may be several founders.
A private investor investing in new projects (startups) evaluates future prospects according to the provided business plan and documents. The purchase of securities of the organization automatically includes the investor among the owners. In the presence of the company’s shares, the right to receive dividends appears, as well as to sell and buy them, taking advantage of the rise in the price of securities.
A mutual investment fund (MIF) provides an opportunity to purchase a share. The organization decides on its own where the investments will be directed. The investor invests money and expects a return, without making any effort, all the work for him is done by the fund’s specialists.
Hedge funds are investment funds that focus on complex trading strategies. They are not common in Russia due to the difficulties in registering this form. An analogue of a hedge fund can be called mutual funds.
The purchase of bonds is associated with lower risks. The owner of a debt security will be able to receive its par value within the agreed period. Despite the seeming simplicity, each method of investing in a business has its own characteristics and profitability.
Business investments are classified according to several criteria.
- Own business. Initial capital for starting an independent commercial activity.
- Someone else’s project. Investment of assets in an operating company.
Taking into account the volume of the input amount:
- Full funding. Typical for running your own business or after buying out someone else’s business project.
- Partial. It involves the purchase of a share of the organization.
By investment stage:
- Investing in a new project. Investing in startups carries more risks.
- Operating business. Assets are being introduced into a well-promoted project that works successfully and brings a stable income.
By the form of profit:
- Active earnings. A private investor additionally acts as a director.
- Passive income. The management is carried out by employees.
- Straight. Investing money in the material production of a company of interest for profit or its management.
- Portfolio. Acquisition of a portfolio of securities (stocks, bonds) to generate passive income without interfering with the management of the enterprise.
In practice, not one, but several types of business investments can be applied at the same time.
So, if you invest in a startup directly, the profit will be in the form of passive income.
Types of business
The investor has the right to invest personal savings in any project. Choosing the right direction is the key to future success. When evaluating an object for capital investment, it is important to assess the profitability of the business, the level of its management, the prospects of the business plan for a start-up company. It is good if this is a field of activity in which the future investor is well versed.
The choice can be made in the following areas:
- Search for an entrepreneurial project through crowdinvesting platforms;
- Become a business angel and provide financial support to companies at an early stage of development;
- Investing in venture business – more often scientific and technical or technological, which are considered risky;
- Passive investment with the involvement of specialists in the selection of an entrepreneurial project;
- Through investor clubs.
At the same time, it should be understood that no one can give a 100% guarantee on the elimination of risk, regardless of how low-risk the direction of the firm’s or enterprise’s activities would not be considered.
There are several options that are most often used as an object for investing in a business.
Small firms that do not belong to associations are an attractive area for future investors. Small companies are limited in terms of the number of employees (maximum 100 people) and income from commercial activities (for a small enterprise – 800 million rubles).
There are 3 ways to invest assets:
- the introduction of capital into an existing business for its further development and expansion;
- investing in projects at the opening stage;
- purchase of a ready-made business.
Each of the methods provides a good opportunity to make money. The most popular are investments in existing successful businesses. It is enough for an investor to find a partner who needs third-party investments and benefit from productive cooperation.
- Destruction and recycling of waste.
- Computer literacy training.
- Translation of texts from foreign sites.
- Testing and analysis of business projects.
Having stopped the choice at an enterprise that manufactures any goods, it is necessary to assess the level of production, the competitiveness of the enterprise, and the rate of turnover of commodity assets. It is more expedient to pay attention to production, which is designed for mass consumption of manufactured goods – the manufacture of food, clothing, household chemicals and others.
The main criterion is stable demand and quick implementation of the product.
With some knowledge, it is possible to create a website and generate income from advertising. Another option for making money can be the sale of information on the network:
- selling courses electronically;
- conducting web conferences, webinars;
- buying someone else’s knowledge to create an educational information product.
There are also IT areas that are attractive for investment:
- Robotics is the development of automated technical systems to facilitate human labor.
- Programs for 3D printers that ensure efficient use of the device in the industry.
- Mobile applications for health (who wants to keep track of their health, weight, nutrition) and others.
- Online storage of information data (cloud) for the safe storage of downloaded data.
- Big-Data technology – processing and collecting a large amount of data in a specific area.
- Distance learning – selling courses and programs to gain knowledge and useful skills.
- Mobile consultations – answers to your questions using online chat.
- Educational applications for children.
Organizations engaged in high-quality repairs in residential premises (apartments, houses) are in great demand among the population.
Investing free funds in the repair business promises great prospects for the investor.
The fastest way to promote a business is commercial activity under the guidance and use of a recognizable name of a famous brand. Analysts point out that franchise firms are 5 years ahead of new start-ups by 5 years.
- minimum costs for starting a business;
- public confidence in a well-known brand;
- fast promotion;
- proven business plan;
- corporate training and leadership assistance;
- the minimum number of risks.
Investing in a franchise business can be called a win-win option, which in return requires a significant investment.
Advantages and disadvantages
To decide where to invest finance, you need to evaluate all the advantages and disadvantages of investing.
Pros of investing assets in a business:
- The availability of various directions and methods for investment.
- The ability to influence the activities of the company, as well as partial or complete management of an entrepreneurial project.
- Large assets are not a decisive condition for investment; you can invest in a business if you have insignificant funds.
- Passive income that will become a stable income.
- Great potential for earning and developing in the long term.
The main disadvantage of investing in business is the risk of losing the invested finance in the absence of knowledge and choosing an unpromising direction.
There are other disadvantages as well:
- some industries have restrictions on the part of the legislative framework and regulatory authorities;
- unpredictable decrease in the profitability of the project;
- disagreements between the co-founders, what happens when buying a share;
- for successful active investment, you must have certain knowledge and experience;
- unstable income;
- sometimes additional cash infusions are needed;
- when investing finance in start-up companies, profits will not start coming soon.
Business investments are accompanied by economic, financial and legal risks. Even with careful selection, it is impossible to find an industry with a 100% zero loss guarantee.
In any business, difficulties can arise:
- increase in the purchase value of goods;
- increase in the cost of renting an area for entrepreneurial activity;
- improper organization and conduct of business;
- unsuccessful project strategy;
- intrigues of competitors;
- falling demand, great competition;
- economic crisis;
- unjustified expectations of profit in the short term.
In order to manage risks, it is important to secure in the contract the relationship between the investor and the party receiving the financial injections. Thus, part of the money can be returned if the project fails. It is advisable to evaluate the investment scheme even at the stage of choosing the investment area. To do this, you will need to assess the projections for payback and the likelihood of success in the future.
Failures can be prevented by hiring experienced specialists who will check the calculation data and the operating conditions of the project, carefully analyze all sections of the business plan. Particular attention should be paid to checking companies that claim a high level of income in the future. Often in such business plans there are errors in calculations, or the organizers deliberately mislead the investor with the purpose of fraud.
Therefore, before investing, you need to study all the nuances of the sphere in which business will be carried out. If a potential investor does not know the intricacies of this topic, the undertaking is doomed to failure in advance. Lack of economic knowledge can lead to losses and loss of investment capital. Prosperity can be achieved only by thinking over each step.
Business investment is a great foundation for financial freedom. The interest from the activities of the invested company guarantees a stable flow of funds. The main thing is to develop the right investment scheme and invest in a promising field of activity. To ensure yourself financial freedom, you need to set aside doubts and draw up a clear plan to achieve your goal.
Do you think it is necessary to start your own business or is it better to invest in someone else’s business? Write comments and don’t forget to rate the article!