The chances are, you are looking for an investor for your small business. If this is the case, this short guide will help you. Note: we are not planning to try to talk you out of looking for an investor, but it would be wise to know the pros (the benefits) and cons (the limitations) of business investors.
The good news is that talking to an investor can be the difference between a pipe dream and having a fully-fledged small business. As mentioned, it would be wise for entrepreneurs to educate themselves on the limitations of working with an investor. By taking this simple action, you will be in a position to make the correct decision based on your circumstance. Read more about income at a time of high uncertainty.
Table of Contents
Who Is An Investor?
An investor is a person who offers financial aid (often in the form of capital) in exchange for partial ownership of your business. If the business experiences any financial struggle later down the line, the investor can take on new investors or trade their ownership for more capital. If you are in the area of property investment you can secure financial investment in order to increase your property portfolio.
NOTE: You should not confuse this type of investment or treat it like a loan.
The Benefits Of Taking On Investors
• Many entrepreneurs do not have the capital required to launch or keep a small business afloat. Moreover, taking on an investor can be a better option for many entrepreneurs compared to taking a bank loan.
• An investor significantly reduces the financial pressure that comes with being an entrepreneur and it gives you time to establish your brand. This is something that you will not get with bank loans as you are required to repay the loan no matter how bad your business is doing.
• An investor will allow your business to reach its full potential, which is a benefit an entrepreneur will not get with bank loans.
• The investor will take a share of the profits rather than eating into any form of money made by the business-like in loan repayments. Remember, investors do not charge interest.
• The investor takes a risk when investing in your business. With a bank loan, you will have to repay even if you succeed or not. With an investor, you are not required to repay them if the business fails.
• You will benefit greatly from a silent investor. A silent investor is a name used in the industry that refers to an investor who will fund your business but is not interested in getting involved with the day-to-day running of your business. Many businesses thrive under silent investors.
The Limitation Of Taking On Investors
• The process is not smooth, although it offers many benefits. This can have a real downside for inexperienced business owners.
• It is difficult for a business to find silent investors. As a result, a business can undergo a lot of financial pressure trying to grow.
• An investor will always try to find faster results or rewards compared to the bank. That is because the investor takes risks themselves in supporting your business and the amount of money they could spend. For this reason, the investor will always push for short-term growth that may not always be beneficial to the company in the long run.
• There is a risk of the relationship changing when the business begins to struggle. This is particularly bad if your investors are your family and friends.
Conclusion
It is important to note that one of the important things you can do when pitching to an investor is: become honest with the profit predictions. Remember, each business takes on a different time to start turning a profit. Therefore, if you give them a realistic idea about your business and how long it will take to turn a profit, it will help you relieve pressure on your side.