by Sarah Delong
Investing your money in a small business might be a great idea. However, you should take the time to weigh up the pros and cons beforehand as you may find there’s a more suitable option out there for you.
Pros
Firstly, investing your money in a small business is an excellent way to support local entrepreneurs and help grow the local economy. It stops big corporations from littering the streets and allows smaller people to try and live their dreams. You give them an influx of money to help build things up, and it could be the start of something special.
What’s more, it’s clearly advantageous to you in the sense that you can earn a significant bit of cash from your investment. If the small business does well - and starts to grow - then you’ll be rolling in a share of their profits. Think about all the massive companies out there that started off as small businesses - imagine if you were one of the initial investors! It presents you with a unique opportunity that you might never get again. Many people have cashed in an absolute fortune thanks to their investments in small businesses.
You can also get bargains which simply aren’t available in the public markets, particularly if you use business brokers. Small companies often have massive growth potential, which means that their equity can grow by orders of magnitude in a short space of time.
Cons
A disadvantage of investing in small businesses is that you don’t really have a great deal of control over how the business is run. You’ve just invested money in it, which means you’re a shareholder. Unless you’re a majority shareholder, then the chances are you won’t have much of say in how the business operates and what it does. As a result, there’s no way of stopping the company from failing or going in the wrong direction, which could end up costing you money. Now, compare this to something like a co-operative business, and there’s a huge difference. If you visit this website, you’ll see that co-ops are formed to ensure all members have a say in how things are run. This ensures that the company is managed better and results in benefits for all involved!
Perhaps the main downside of investing in a small business is the risk associated with it. When you invest in a big business, then there’s less of a risk as you know it’s going steady. With a small one, everything could be over within a year. There’s a pretty astonishing percentage of small business closures every year, so you’re taking a substantial risk that could cost you a lot of money.
Conclusion
There was always going to be an equal balance of pros and cons with this idea. When all things are considered, it basically boils down to what you want out of the investment, and if you’re willing to take a risk. If you’re not interested in controlling a business and having a say in things, then investing in a small company could be perfect. The key consideration is to ensure the business has a really impressive plan that you’re confident will succeed. This reduces the chances of it folding within a year and costing you a fortune.