You will have to think about liability, the business, your timeline and exit strategy. Although there is nothing right or wrong, there are steps you can take before investing.
Opportunity
When deciding to invest you need to be aware of different opportunities and be open to them. Unless you are already a local business owner or involved in the business community it is unlikely that you will be approached straight off with an amazing investment opportunity or business venture.
Many entrepreneurs lack sound business plans, so you will want to have their history and detailed business plan first. Always read the company’s prospectus when investing in a business as it will give an insight into how it is run. If you are a new investor it is best to stick with businesses with clear cut plan and great results in the past.
Understanding the Structure
Have a sound understanding of how a business structure works when investing in any business. Be alert and aware that there is a chance it could fail as approximately 50% of all small businesses will close within their first five years no matter how fool-proof their plan seems. Moreover, depending on the business structure, you could be responsible for any unpaid bills or liabilities in case the business fails. Make sure you know what you are getting into before you commit.
No Guarantees
There are no guarantees in the world of money investment. Above all, almost no investments can make you rich overnight and making a profit will take time. If you are looking to invest for a particular time period, consider investing via a loan. This is a common way to invest money, but you should make sure that your investment is presented and documented with the right legal paperwork or you will be setting yourself up for a fall.
Exit Strategy
Any investment comes with a degree of uncertainty. There is a chance that the business could be a success, just as a chance that it could go bust. As a result, it is worth making sure that you have an exit strategy before investing. That way you will know how and when to sell your stake in the business. Every investment is a risk but with an exit strategy in place you are prepared for the safer side.
