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Apr 07

How to make money through small business investments

By Terrence Black | Small Business

A significant portion of successful business people started their journey with a small business. They either owned one or invested their cash in a company other people owned. Small business ownership is one of the most common ways with which people tend to embark on the financial independence journey.

Some of those businesses fail, while others develop into successful enterprises and you might be the key to success. Investing in a small business is a good way to generate profit without having to run your company (it helps, but it isn’t required).

                                        Investing in small businesses – Equity

Equity investment means that you buy off a portion of the company and thus gain the right to receive a percentage of the profit. You will also lose money if the business encounters losses. This type of venture means that you provide money for the firm in exchange for the benefits, and losses.

The owner can use your money for various things, from expanding the company to building the liquidity. Many business owners are open to suggestions, and you can come to an agreement about the subject in which the money will be invested.

The percentage of the profit and loss the investor gets is proportional to the investment, but there are cases in which it doesn’t work like that. If an investor provides only money, then they receive profit that is proportional to the amount of cash they invested. Those that bring expertise, along with cash, to the company will receive bigger cut because they help in the development of the company more than those that have the only money to offer.

                                         Debt investment and how it works

Debt as a form of business investment is the other way to earn money from small companies without doing anything. The risk of debt investment, compared to equity, is almost non-existent, as the owner of the business has to repay you the money you gave them. But low risk means small profit and the amount of money you get out of the venture is minuscule when compared to equity investment.

Low risk comes from the fact that you give a loan to the company owner and they are required (by the law) to return that money to you at some point in future. The said time for recovery is usually found in the contract. You get interested in the loan, and that is why the profit is rather small. A great thing about this form of small business investment is that you will receive your money back even if the company goes bust. Debt has priority over stockholders and other parties that require payment from the enterprise that went down.

Apr 07

Mistakes that may ruin a new business

By Terrence Black | General

Starting a company is a tricky venture, and one small mistake can ruin you. Many things can go wrong, and the majority of those are caused by you, the person that started the whole project. Some mistakes are very common, and people tend to make them repeatedly.

You have two ways to avoid mistakes. First one is to hire professional help that will aid you in opening the business for a fee. The other option is to learn from mistakes that other people make. We want to help you, and thus we will make a list of common pitfalls that other people fall into.

                                        Financial and business mistakes that shouldn’t happen

You can open a company and still go down due to bad pricing. Many people ended with ruined business because their prices were too high. It’s important to start off with low prices to attract enough people and create (if possible) regular clientele that will generate steady profit.  You can introduce more expensive products (services) down the line, but don’t do that at the beginning.

Hire an attorney, and you will save a lot of money in the long run. They might be expensive, but dealing with all parties from which you have to get licenses and permits is a complex process, and lawyers are perfect for that. They will make sure that everything goes according to law and that you got all documents that are necessary for running the company.

Write a business plan, or pay someone to do that before you start working. It requires a lot of research and time, but it will tell you whether it is smart to start a company and provide services (products) of that type, or not.

                                                     Other mistakes that people make

Some people make other kinds of false steps in the whole company creation process, and that leads them to bankruptcy. One of the things that many new and upcoming business owners do is hiring people that they know rather than people that are experts in the field. They hire relatives with limited knowledge because they want to help them and it costs less than hiring professionals. This backfires and causes immense losses to the business, as amateurs can’t perform as well as experts can.

Do your dream job” is one of the most stupid things that people can say. Individuals that do this will lose money they worked hard to earn because following ideas rather than doing research leads to ruin. You should start a company that has a good chance of making a profit, not a business that you would like to run. Your dream job should stay in your head because it might be a part of oversaturated market where everyone experiences losses.

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