5 STEPS ON HOW TO INVEST IN SMALL BUSINESSES.

 Investing Startups Simplified.

It can be challenging to offer a precise definition of a startup: It can be a business creating a new product or service under conditions of extreme uncertainty, or a company aiming to solve a problem where the solution is not obvious and success is not guaranteed.

Startup investing is potentially lucrative, but it's important to understand that it comes with big risks. The vast majority of startups fail-even if you do research, you could end up with a pocket full of nothing. 

If you want to invest in a business through either debt or equity, there are many steps that you should follow to lower your risk and improve your odds of generating positive returns.

#1. Source deals

If you want to invest in small businesses, the first thing to do is find business investment opportunities-namely companies that are looking for financing. Keep in mind that not all companies seek investors. They may not be ready to give up ownership, or they may be fully extended and unable to make additional loan payments.

#2. Meet with company principals

Once you've found an opportunity, it's important to meet with the leadership of the company. This is an excellent opportunity to see what they hope to accomplish and their intended uses for financing. This is a chance for you to get a feel for the business you may invest in and the character of the company's principals. These people are your potential partners, and this is your chance to decide whether they're the types of people you want to be in business with. 

#3. Conduct due diligence

The next step when investing in a small business is to take a close look at the business as well as its financials and potential viability. This may mean reviewing the books, looking at outstanding loans or reviewing a market study for the product or service the company is selling. You may want to consider running background or credit checks on the company's leadership or other owners.

#4. Negotiate the terms

Once you've done a comprehensive review of the business, you will need to come up with a term sheet or sample financing agreement if you want to offer financing to the business. Once you put together a detailed outline of what you're willing to offer, you should review it with company principals. Once you agree on the board strokes, you can work out the fine points.

#5. Close the deal

After you've come to an agreement with the company's principals, you'll need to close on the financing pact to finalize your investment in their business. This is when you'll sign agreements and provide the capital you promised to offer. In turn, you'll receive company shares or a signed contract that reflects the terms of your loan and outlines how and when it will be repaid.

Conclusion...

Sometimes it isn't enough to start your own small business and build it from scratch. Between time constraints, capital constraints and opportunity costs, there's a lot that can get in the way of successfully building a small business to generate high, long-term profits.

This is why it's so important to channel your entrepreneurial vision into a sound investment strategy. When you buy into a small business, in the form of a debt or equity investment, you can share the rewards of a company's success without having to invest in the serious time and energy commitment of managing it. 

Granted, small business investments can be risky, and no one business can guarantee consistently high revenue or capital gains. But the market does tend to reward those who invest in a diverse portfolio of small, growth-oriented companies.

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Written by: Antony Moturi

   About the Author: 

Antony is a professional DJ, Pianist, Social Media Manager, Content Creator and a Blogger. Besides that he does professional Sound Engineering, Public Speaking and is a Youth Leader.