Do you dream of financial independence and want your money to work for you? Investing in business is a great way to achieve these goals. But where to start when there is so much information and opportunities around? Don't worry, this guide will help you take the first steps confidently and consciously.
Read moreBusiness investments are funds attracted from outside to implement a promising idea, develop a young company, and accelerate the growth of an existing enterprise.
There are many ways to attract investments. The most obvious, but far from the most profitable, is to take out a loan from a bank. You can also find investors for a business on crowdfunding platforms, in venture funds, among business angels.
To attract finances from outside, you need to have a special mindset. Investments allow you to build a successful business at the expense of someone else's income, which will bring profit to both the owner and the one who invested in it at the first stage. The main thing is that the business plan works, and the owner of the capital has enough patience to wait for the first profit.
Today, so-called startups are popular, most of them exist due to investments from outside. However, according to statistics, about 80 percent do not achieve success, and in 30-40 percent of cases, the investor loses all the funds that he spent on developing the project. The riskiest and most dangerous type of investment for finance is venture investment.
It is believed that a business will grow provided that it is given financing from outside at the first stage. According to surveys, about 50 percent of entrepreneurs do not see the point in developing a project if it is not accompanied by an investor.
To enter into an agreement with an investor, you must have the status of an entrepreneur; not only companies, but also individuals can participate in cooperation. The main thing is that all agreements are recorded on paper, otherwise you can face a lot of difficulties when resolving controversial situations. Investments in business development are needed at the first stage.
It is generally accepted that a businessman should open his own business with his own funds, because not everyone wants to share company shares or profits with an investor. Especially when the company's business is going uphill, and the financial component is only growing.
When opening your own business, for example, a coffee shop, a store or some kind of educational project, the investor will ask for about 50 percent of the company's share in exchange for start-up capital, and this will lead to the owner losing motivation. After all, he will have to share a fairly impressive part of the profit with someone who, except for finances, did not help in any way. Such projects rarely survive, because their development depends on who is involved in all internal processes. It is recommended to use your capital when opening a classic business that is not related to technology, so you can take out loans for yourself and issue loans. With a successfully built strategy, the profit will begin to cover expenses.
If the business is tied to the development of modern technologies, assumes the appearance of a unique product on the market, then such an idea requires serious financial support. No bank will give a loan for such a project. A technology startup needs significant infusions of money, and an investor interested in promoting such an idea is ready to take a risk and invest in its development for the sake of his own role. When such investors become more numerous, the company begins to grow in the eyes of others, this contributes to an increase in its market value. Investments in business projects are needed seriously.
It is best to start with an area that has not received much attention so far. The less money is invested in it, the higher the chance of getting a benefit in percentage terms from investors.
It is important to understand what goals a businessman pursues when he wants to attract outside financing. This depends on what stage his business is at. There are different sources of investment in a business.
Stages of business development:
Seed stage. When work on a project has just begun, a test version is thought out, a sample is developed.
Startup stage. Here the product is shown, its advantages over similar ideas, while the test version is still being implemented into production, the product does not enter the market, but only trial batches are launched. Expenses are greater than earnings.
Expansion. The product has already entered the market, the first wholesale batches are received, earnings begin, which soon lead to break-even. This provides an opportunity for further growth and expansion of the company.
Growth. Earnings significantly exceed expenses, sales are growing steadily, demand for the product in the market has also increased. It is necessary to change the assortment, improve processes and hire additional personnel.
Mature growth. Turnover is normal, growth is small but stable. Now it is necessary to stay afloat, without falling into stagnation. For this, the company needs expansion and development.
There are risks at each stage, but there are also goals to strive for. For a specific goal, it is necessary to attract investments in private business.
Perhaps, you should start only at the third stage, when the company's position has already stabilized and you can invest in development. Sometimes it is important to come out on top at the start, as this will allow you to more widely present a new product on the market. Everything depends on the results that the entrepreneur expects.
Goals of attracting investments by stage:
Investing at the seed stage. To test the model that you have chosen during product development, you need significant funds. Then you will need funding to create the sample itself, test it, research, and pay for the team's work.
Investing in a startup. To test a sample on the market, you need to invest in marketing, attract interested customers, and pay for the trial batch itself for subsequent implementation.
Investing at the expansion stage. When the product is launched, you need to set up production, and investments must be spent on advertising and increasing staff.
Investing at the growth stage. When there is a significant growth spurt, money should be spent on expanding the possibilities for selling the product, improving it, increasing the number of its varieties, and it is also worth looking for new sales markets.
Investing at the mature growth stage. Money should be invested in scaling, paying attention to merging with other companies. At this stage, the business is often sold to the "sharks" of the market, leaving a certain share for yourself.
Most often, ruin and failure occur at the first stages of starting a business. About 80 percent of startups fail because they cannot sell their product on the market. Usually, investors lose part of the money invested, and the businessman has to go into debt to pay off creditors. Therefore, when evaluating an investment in a business, you need to understand the risks.
Sometimes a strengthened business also needs additional funds. Experienced companies want to expand and scale, but without certain financial support it can be difficult to do so. Let's consider what schemes exist.
Bank financing. When a bank trusts a company, sees that it is conducting stable activities and receiving income, it can provide a loan at a certain interest rate that will suit both parties. Although banks will not invest as investors in new and unknown technologies, they monitor the company's reputation, see how things are with the financial guarantee. If it is necessary to attract credit funds, the entrepreneur must provide all the information, and the bank will give the opportunity to use its services.
Investment funds and private equity funds. Reputable funds are looking for proven companies to receive part of the income from them. They are ready to buy shares, receive stakes, as they see stable growth and an opportunity to invest in startups with a large share of profit. Companies also increase their profitability by selling shares on the stock exchange, they place attractive "lots" in order to find those willing to invest in them. Large funds are known all over the world, but they only play with the same proven professionals. Strategic investors. These are large players in the market who are ready to buy a company or most of its shares. It is worth noting that they often seek to completely absorb a company in order to gain maximum access to its financial capabilities.
The information in general turned out to be useful and informative. It is not surprising that many do not understand how to manage finances because they do not study such articles.
I would still like to see more disclosure of some topics, but in general the article covers all the important issues related to financial activities. I will follow the release of new articles and study the topic of finance in detail.
After reading the article, many things became clear in investment matters, and most importantly, now I can correct my mistakes in financial management. Thanks for the details and explanations.