Every new business requires an investment. Sometimes this is simply an investment of time to develop skills. Most of the time, however, it also requires a monetary investment.
Why New Businesses Require Investments
Most new businesses need an investment, but depending on the type of business you are starting, your investment will require more than money, it will also require time. A graphic designer, for example, would need to invest in training, software, and a portfolio website to show their skills, along with the time to refine their skills, and learn new skills. This investment would be significantly lower than for someone wanting to start a bakery, or a software company.
While all businesses need funding, some need a lot more than others. Some require a space to rent, equipment and supplies, as well as special licenses. You have to get the initial funds before seeing a profit. And most of us don’t have the money in our pockets that is needed to get started. That is why understanding different types of investments are often a good place to start.
It’s important to remember before you decide on an investment option to have a developed business plan first, and to have a plan and strategy in place This will help you make the right investment decision based on your needs.
Types of Investments
Equity is a type of investment that deals with selling shares of your company to others. Investors provide the funds you need in exchange for a percentage of your profits.
This can prove to be a win-win situation, because you’ll have the funding you need and they have an opportunity to make money in the process, as your business grows and succeeds.
Equity is seen as a long-term opportunity for creating cash flow and opportunities for your startup. The investments that shareholders make to your company are to be used for the growth of your business. In companies with equity, the success of the company benefits everyone involved, and can lead to a lot of others making a profit off their investment.
Unlike debt, you aren’t required to pay back investors should your business fail. However, this means that investors will want decisions made in their best interest, considering their biggest desire is to see a return on their investment. Part of this deal includes giving up some control of your own company to cater to these desires. This may also include partnering with one another and each person taking on specific types of responsibilities.
If you are simply looking for short-term cash flow to get started, want total control over your business, or are not necessarily concerned about long-term growth, then this isn’t the right option for you.
Debt financing is another option, and if you want to have control over your own business decisions, and are looking for ways to get money for your business to get off the ground.
You can do this by taking out personal loans or using credit cards. However, another option is taking out a business loan.
Debt financing means all the risk and reward is up to you. You have complete control over your business, and getting a loan means you don’t have to give up your profits. You do have to pay your loan back, and with interest. But that interest is tax deductible.
The downside to this option is if you business fails you still have to pay back your loans. And it may be difficult to pay them back if your business is slow starting. There can be a real risk of bankruptcy when choosing this option, so keep that in mind when making your decision.
Which Investment Type is Right for Your Business?
The right type of investment for your business depends on the business itself. If you are in this for the long haul, and are ok with other people having a say in business decisions, then equity maybe your best option.
If you’re looking for a short term financial solution to get your business off the ground, while keeping control of your business, debt financing may be the best option for you.
While both of these options are great for certain business needs, there are still downsides and risks to both options. And for those whose businesses don’t require a significant financial investment, these options may not be right for you. There are other things you can do to earn money for your business, but they can be a little less reliable and predictable as far as how much you’ll earn.
Other Ways to Gain Capital for Your Business
Community fundraisers are an amazing way to gain capital for your business. You can have a community art show, a bottle drive, or a carwash. There are a lot of different types of fundraisers, and it really depends on your business needs.
You can also start an online fundraiser. Advertise your business on social media, and explain that you need money for a startup, and what you will do with the money.
Sites like GoFundMe are great for fundraisers, and you can get your friends and family involved by sharing your fundraiser with them.
Kickstarter is known for the way they help entrepreneurs make sales for concepts and ideas before the product have been completed. While there is a lot of effort that goes into creating these products and organizing a successful campaign, using this idea to help you make pre-sales can help you get some cash flow you need to get going.
Knowing what type of investment is right for your business can be tricky, just like navigating the world of entrepreneurship. But the good thing is, you don’t have to figure everything out alone.
Here at Biz to Biz, we believe in the power of dreams and want to see everyone realize their business goals. We believe networking is a great way to do this, and we offer networking groups that empower you in your success. Learn more about becoming a member here.
We also have an opportunity where you can invest in building your own Biz to Biz networking groups. We provide the training, the technology, the strategy and support and you can build a business that is successful using a proven strategy.
We have both virtual groups and in person group options available. When you become a certified business partner, we are here to empower your success, as you bring your passion for small businesses to the groups you build. If you are interested in learning more about this opportunity please visit our partner page, or contact us to schedule a call and we will take you through the details.