You may have explored a number of investment options, such as bank deposits, shares, stocks and bonds, mutual funds, and so on. But, have you ever considered putting your money in a small business? Yes! In India, we are slowly warming up to the idea of investing in small and medium sized businesses, as more and more people get allured by the return potential and the exciting journey that it involves.
In this article, we discuss the benefits of investing in a small business, and why you should consider it as a major investment goal in the years to come!
- Capital Gain – Unlike investing in a business for dividend income, which gives steady but relatively smaller, periodic pay-outs to the investor, you can invest in the equity of a small business for capital gain. What does this mean? Essentially, an investment made for capital gain does not pay out a steady stream of income, and waits for the value of the business to multiply instead, so that the value of the investment made by the investor also multiplies proportionally. This implies a longer gestation period, but a much larger return potential. For example, let’s say you have Rs 1 Cr. to be invested. You can invest in a company which pays say 10% dividend monthly, or you can invest in a small business whose value will potentially double in 5-7 years by using your money as growth capital. When this happens, your investment also doubles! Now, how would you identify a business with a good growth potential and what value multiplier can you expect? Usually, a good consultant or deal professional should be able to help you with these aspects.
- Interest Income – If you are interested in immediate, periodic payments instead, go for debt investment in a small business as opposed to the equity route. A debt investment is like a loan, but an investment all the same. A predefined interest rate is agreed upon between the business owner and the investor, and annualized pay-out streams of repayment are disbursed periodically. The upside? You do not have to wait for the business to start minting good money, and a debt investor usually has preference above all other investors!
- Diversification – As Warren Buffet once said, when it comes to investment, “one should never put all one’s eggs in one basket”. Instead of only sticking to the conventional investment options, bring a fresh flavour to your portfolio by investing in a high-growth small business. Let your money work hard for you as you reap the benefits of a diversified investment basket.
- Grow Your Network, Grow Your Money – Not all investment returns are tangible. Apart from the direct monetary rewards of investing in a small business, there are also indirect benefits that can help you grow your money in the future. These include securing your foothold in the industry to which your investee business belongs, growing your professional network through business promoters, consultants, deal professionals and co-investors in the business. Unlike other investments which tend to be passive, investment in a small business is a high-involvement one that also makes your journey exciting and the returns manifold.
You must be wondering if there are risks associated with investing in a small business. Investments are never risk-free, and investing in a small business is not an exception either. However, there are several ways to safeguard your money, and mitigate the risks involved. These include: opting for low-risk instruments such as debt investment, vetting the business, its owners and the industry rigorously, and securing investor rights for protection against future unforeseeable circumstances.
At IndiaBizForSale.com, we provide first-time investors with thorough support and handholding, and also help you connect with professionals to help you with the transaction and risk-management. We have thousands of businesses on our platform which can be filtered by industry, location, asking price, credibility and so on.