Making your first investment and becoming a partial business owner is one of the most rewarding things you can do with your money. In fact, investing is one of the best ways to build your wealth and increase your savings rate.
According to a study, for 99% of individuals making less than $500,000, wages accounted for 75% of their income. For comparison, for individuals making over $10 million, wages only account for 15% of their total income. This trend shows that high earners are making more money from investments than from wages alone.
Keep reading this guide to learn how to become an investor in a business and start earning your return today.
1. Build up Your Savings
To invest in a small business, you will need to have some money available to fund the business. Depending on the company and industry you are looking to invest in will determine how much money you will need to save.
If you are looking to invest in low capital investments, you won’t need as much saved. But for higher capital investments, you may need more significant savings.
2. Research the Industry
If you have a business in mind that you are looking to invest in, it’s a smart idea to research the industry to understand the competition and where the company fits into their respective market.
One of the best ways to predict the economic growth and potential of a business is to conduct a SWOT Analysis. The SWOT Analysis consists of listing the companies:
- Strengths – Areas that the company executes well in. Or competitive advantages the business possesses.
- Weakness – Areas of business they could enhance.
- Opportunities – Areas of business they can take advantage of and earn a competitive advantage.
- Threats – Areas of the business that the competition has an advantage over.
Analyzing each area of business can help you better understand the company’s unique value proposition and if you should invest in the business or not.
3. Learn the Different Ways to Invest
There are several different types of business you should be aware of. These include:
- Sole proprietorship
- General Partnership
- Limited partnership
- Limited Liability Company (LLC)
When you are researching a company, this is an important factor to consider because it will determine how you can invest in it. If you are looking to invest in a sole proprietor, you can simply provide a loan and charge interest on top of it. However, if you are going to invest in a partnership, make sure you understand your role and how much ownership you control.
Investing in a corporation, on the other hand, is going to be a little more complicated. First off, it will depend on if the company is private or public. If it’s public, you can invest by opening a brokerage account and purchasing shares. If it’s private, it will often take an angel investor or venture capital firm to have the opportunity to invest.
How to Become an Investor in a Business: Getting Started
Now that you know how to become an investor in a business, it’s time to put your knowledge into action and make your first investment. Keep in mind that while looking for an investment, it is still a risk, and you can lose money on the investment. This makes doing your due diligence on the business essential to avoid any unnecessary losses.
If you are interested in learning more about investing and other helpful business advice, head over to our blog!