People are always on the outlook for ways of growing their money beyond their basic income. That is why they save their money in Money Market Funds (MMF), stocks, shares, and bonds. But which are the most effective ways and places of investing that can guarantee an increased income? Let us see, how to invest in a business and make money?
The best way to start is by carefully analyzing and considering the different available strategies. These include real estate investments, stock-market, retirement plans, and peer-to-peer lending, or even growing and monetizing your skills.
Once you identify the strategy that best suits you, take action and see your strategy springboard you to your new income level.
But there is also a new way of making more money- investing in profitable businesses.
Investing in such businesses especially when they are in their early stages of development offers a unique excellent opportunity for you to grow your wealth. This kind of investment is a long-term strategic asset. It usually happens when early-stage and growth-focused companies are at their equity crowdfunding stage. It is important to note some investments will take years before producing results.
You may like to read, Is investing in startups a good idea?
When the business you have invested in succeeds, your worth of shares increases. But when it fails, you lose your worth of shares. It is thus important to carefully analyze the potential of the companies before investing. Outlined below are a variety of business investments that can start building your wealth and growing your revenue.
Defining Small Business Investing
As an investor, you can invest in small businesses by lending them the capital they need or by buying some of the shares in the company. You will be getting returns from these which could be in form of dividends, interest, or appreciation.
If you opted to purchase some of their shares, you will be entitled to a portion of what the business earns over time. And even as the company expands, you will gain a massive worth of shares with time.
To invest in a business, you will take either equity or debt in the company. While both can deliver excellent returns, they are slightly different. To invest, you first need to understand the key differences.
- Debt investing– In this scenario as an investor, the business borrows for you. This happens when a company decides to secure its business funding from individuals instead of taking loans from the bank.
- Equity investment– In this case, an investor is usually offered an ownership stake in the company. In simple terms, as an equity investor, you will own a portion of the company. On top of that, you will have an entitlement of the revenue and dividend that the company generates, which is equivalent to your shares.
Investing is a Business through Equity Investment
You will be buying into a business by acquiring part of the company stock. You are also entitled to the revenue and assets that the business generates. You can buy and sell stock from major stock exchange market places such as the New York Stock exchange. Stocks are the most common form of equity investments.
Besides the stock exchange market, you can also invest in stock through a national exchange. National exchanges are a great way of investing in large multinational companies. Many investors, however, opt to invest in new local businesses.
Equity investment is one form of investment that can make you a lot of money since stock prices keep going up with time. However, as with many high-return investments, the risks are also high. The stock prices can drop sharply in a short period.
Investing in a Business through Debt Financing
With debt financing, you can lend money to a business and receive regular payments with interests until all of the money that you loaned is returned. It does not entitle you to portions of company profits.
Its risk is also low as a result of low vitality in the market. Some examples of these kinds of investments include mortgages and bonds.
Ways of Investing in Small Businesses
There are a variety of steps you need to follow as an investor when investing in a small business. This enables you to make smart decisions that lower the risks and generates higher returns.
The first step will be to look out for businesses that are on the outlook for financing. Once you identify the company you want to invest with, consider meeting the leadership team. They will help you understand the trajectory of the business you are investing in. You can then decide if you want to push forward with your investment.
Besides what the company management tells you, you should be able to conduct your due diligence of the company. Take a keen look at their financials and assess their viability. Also, do a background check of the owners and see if they are the kind of people you will want to invest with.
You can then negotiate your terms of investment. You need to have a financing agreement with the company. When all of that is done, close the deal. You sign the agreement and provide the capital you had promised to offer. The agreement will also outline ways you will be repaid.
Examples of Promising Businesses to Invest In
- Real Estate: Real estate is one of the industries where it is almost impossible to make a loss. The value of real estate investments normally grows with time. When you rent out properties, you are assured of regular payments. You can buy a discounted home as an investment, perform some renovations on it then finally sell it at a much higher price.
- Medical Services– For a long time, medical businesses have been a good investment with guaranteed profits both in the short and long-term run. And even now in the middle of a global pandemic, this makes a great investment. Consider investing in doctors and dental services.
- Catering services– Beverage and catering companies are in great demand and can make a great investment option.
- Legal services– Almost everyone needs an attorney at some point in their life. This is why legal services are a solid opportunity. Law firms on average generate a high-profit net margin. They can be as high as 50% in metropolitan areas. Some of the profitable branches of law include intellectual property, employment law, criminal law, and trusts and estates.
- Copywriting– In the present economy, skilled copywriters are in high demand. They generate high-profit margins due to their ability to work remotely. Copywriters are needed for advertisements, newsletters, websites, newspapers, and everywhere! This business has low barriers to entry, thus presenting perfect opportunities for business investors.
In the present prevailing circumstances, the following are some examples of businesses that are considered as the worst investment opportunities: mining, oil and gas, and beverage manufacture.
- The stock market: This kind of business investment is relatively easy as transactions take place online. You can buy stocks through financial planners, brokers, or using some particular apps and online platforms such as E*TRADE. The companies whose stock (shares) you buy will pay you back in dividends which represents some profits that the company you invested in makes. While stocks are a great option, you will first need to learn some of its basics so that you can make good decisions on which companies to invest in and which broker or financial planner to use. For your first investment, consider setting aside at least $1000. And when you do invest in a stock market, you need to stay on your toes all the time. The changes can be so drastic.
- Bonds: These are usually considered a better alternative to the stock market. Bonds are investments in debt whereas stocks represent equity. There is generally more financial security in bonds. Even when a company is eliminated, you will still receive payments from your bond. When you invest in a high-yielding bond, you are likely to get high total returns provided the company you invested in is growing at a steady rate.
Once you have invested in a start-up, below are some of the ways you will be earning money from your investment.
- When the management sells the start-up: Small companies are often bought by larger ones. When this occurs, part of the money generated will be paid back to you according to the equity or debt you had in the company. This is a fast way of earning money from your investment. On top of that, you can receive a new stock when both companies are incorporated.
- When the company goes public: Small companies go public in their expansion stage. This is great for you as an investor because the expansion means your investment will be increased.
- When the company begins to pay dividends: As the company, you invested in continues to make more money, they start to repay their investors, including you. These payments come in form of dividends which will earn you more money.
- When you sell your shares: You can buy shares from a company at a low price then resell your shares at a higher price to earn a profit. You should however note that selling your shares can be hard especially when the particular company isn’t doing very well. It might take time.
Also read, 16 Best Employee Benefit packages for Startups.
How to Invest with Little Money
You need to have money to invest. If you have a little of it, consider opening a savings account where you can save your money from time to time. You can as well save in your retirement plan.
After you have accumulated just enough, you can consider investing in the following things which accepts smaller amounts of money:
- Mutual funds: These funds will enable you to team up with other investors and buy stocks together. All the investors will own the particular mutual fund while a money manager will handle them. Mutual funds can cost as low as $100.
- Treasury securities: These are a type of savings bond which can be bought from the U.S. Treasury’s bond portal “Treasury Direct.” With these, the rate on return is guaranteed and they are retirement friendly. Treasury securities may not make you rich, but they will offer interest on your money.
- Micro-investing: In this kind of investment, you’ll have to regularly and consistently save small amounts of money. You can use the Acorns app for this. It is an app where you can save all your spare changes. It rounds off decimal amounts to the nearest whole number hence increasing your savings. For example, when you save $3.85 with the app, it will round it off to $4.00, hence increasing for you $0.15.
Other sites and apps that you can consider using for minimum investments include Betterment, MoneyLion, Robinhood, Stash, and Rize.
How Much Money Can You Make as an Investor?
The return on investment varies for every investor. That depends on the kind of investment and the risks associated with it. If you are making the right decisions on the kind of businesses to invest in, your investment is likely to earn you a lot of money. For example, a real estate investor can earn as much as $63,500 every year.
If your investment decisions incline more on the stock market, you might consider Warren Buffet as an inspiration. In 2018, he was worth $87.1 billion and the third richest person in the world, all thanks to his diverse investments which he made in the long run.
It is important for you as an investor to channel your investment vision into a sound strategy. Both debt and equity investment will enable you to share in the rewards of a company without too much sweat or investing serious time into it.
You may like the following business articles:
- 9 Modern Ways to Get Funding for Your Startup In USA
- 15 Business Ideas That Can Help You Earn While Traveling
- What Are The Best Business to Start With 100k?
- What to Do If You Want to Get Out of A Failing Business
- 15 Home-Based Business Ideas for You to Consider When You Have Less Than $1000
- How to get funding for startup without giving up equity
Small business investments can generally be risky. But all businesses have some sort of risks associated with them. The returns are however rewarding. If you are considering investing in businesses that can make you money, consider assessing its situation first. Evaluating the quality of businesses before making an investment decision is considered a wise move that can pay off in the long run.
Bijay is an entrepreneur and start-up founder having more than 14 years of IT industry experience. He is the co-founder of TSInfo Technologies, a SharePoint development company.
A dedicated professional and very passionate about public speaking and also wrote thousands of technical blogs in various technologies. He also wrote a lots of blogs on entrepreneurship, investment, startup, business, manage money tips, etc.