Buy a Small Business – Make a Big Investment

“Do Something Today That Your Future Self Will Thank You For”

Are you looking for new and exciting investment opportunities for your money? You are not alone. Investors all over the world today are on the lookout for something more engaging and entrepreneurial than traditional investment options like stock, bond, shares, deposits and mutual funds?

Did you know? Putting money in a business is the new age mantra to making your money work hard while experiencing a deeper and more fulfilling engagement in your investment. We have worked closely with thousands of business owners, investors and business buyers over the last 5 years, and in this article, we share with you the various ways in which you can benefit by investing in a small business or buying one.

  • Multiplier Effect – Invest in the equity of a small business to get attractive capital gain. What does this mean? Essentially, an investment made for capital gain does not pay out a steady stream of income. Instead, it waits for the value of the business to multiply so that the value of the investment made by the investor also multiplies proportionally. This implies a longer gestation period, but also a much larger return potential. For example, you can invest in a small business whose value will potentially double or even triple in a few years. When this happens, your investment also doubles!
  • Periodic Returns – If you are interested in immediate, periodic payments instead, go for debt investment in a small business. 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! This post can help you decide if you should buy a business or invest in one.
  • Diversified Portfolio – 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 flavor 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.
  • Network Effect – Not all returns are tangible. Apart from the direct monetary rewards of investing in a small business, you can also grow your professional network through your interaction 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. Don’t miss this interesting post that tells you why business partnerships matter.

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.

Should You Buy a Business or Invest in One?

If the idea of buying a business or investing in one excites you – you are not alone. Thousands of first-time buyers and investors join the crowd every year. For some, it is the idea of testing their entrepreneurship acumen in an existing business, while for some it is about making their money work hard. However, for many people, the decision is not easy to make – should you buy a business or invest in one?

We have worked with thousands of business owners, buyers and investors over the last few years and have closed multiple deals – both in business buying and investing. In this article, we will share a few practical insights from our team to help you understand the varied implications of buying and investing in a business. We recommend that you begin by asking yourself the following questions – the answers will help lead the way towards the most suitable opportunity for you.

  1. What is Your Primary Objective?

Are you looking for complete ownership, control, and a deep-dive into entrepreneurship? Are you excited about building your dream venture? Do you want to be your own boss? If the answer to all of the above is ‘yes’, then buying a business is more suitable for you. Investors are limited in terms of the amount of control and decision-making power they exercise in a business. Of course, there are various rights of an investor that you can exercise to significantly step-up the amount of control you have – but the owners are still going to have the final say and a much higher involvement in running the business.

  1. What is Your Professional Background and Industry Experience?

Do you have some experience in the industry to which the business belongs? Do you have prior experience in running a business – either first-hand or through a family member? Do you have adequate network in the relevant domain? If yes, then buying and running a business on your own will be a lot easier and more appropriate. However, if you are not sure about your background and experience being a good fit for the business, then investing in it might be a sound proposition.

  1. What are the Resources at Your Disposal?

Resources are critical when it comes to running a business. Does the business have an existing, well-established team, or do you have to build one yourself? Is there a loyal client base that you can rely on? Are the distribution networks on auto-pilot or will they require your constant supervision? Is the raw material coming steadily from an assured supply base, or is vendor management going to be a constant headache? If most of these pieces are sorted out, buying is a lucrative possibility. However, if the business is of high potential but still needs a lot of fixing, it might be better to invest your money and help the owners figure it out with whatever you can.

  1. What Are Your Existing Commitments?

In reality, the decision to buy or invest in a business is not isolated from other decisions in one’s life. Contrary to popular belief, there is no ‘right time’ to buy or invest in a business. There are no rules – anyone can put money in a business at any point in time, provided their existing commitments are in sync with the decision. Having a wonderful day job that you absolutely love? Invest in a business. Looking for a career transition? Consider buying your dream business. Have significant financial commitments towards your family? Start by investing in a business – consider buying one later. Looking to build an enterprise that will sustain your family for generations? Go for buying a business. These are just a few examples – the best way to go about it is to map all your personal and professional commitments to the two options (buying and investing) and arrive at the best opportunity for yourself.

So, what are you waiting for? Choose the option that is best for you and take the plunge! We have helped thousands of business buyers and investors in choosing the right business opportunity through our platform. We help you get matched to the right businesses, communicate confidentially with business owners, and much more. Register with us today to kickstart your journey, or write to us at [email protected] to know more about what we do and how we can help you.

Tips to Remember While Investing in a Business

Be it for business expansion or otherwise, investing in a business can be exciting. However, it is often expensive and comes bundled with risks. In this article, our team at IndiaBizforSale shares with you the common tips to remember as you set out to explore an investment opportunity in India!

Before You Begin

Industry: Every investment opportunity is a risk-return proposition. Start by shortlisting the right industries for you to invest in. These could be either the ones where you already have a portfolio, or the ones you have an understanding of, or simply something that is new and has good return potential.

Size: Identify a range of business sizes that you would be comfortable investing in. The size could be in terms of revenues, customers, employees, infrastructure, or any other indicator as you may deem fit.

Location: Location becomes important in terms of the local environment and your accessibility to the locations. You don’t want to put your money in a location that is fraught with political / communal unrest, or one that is not easily accessible within a few hours!

Transaction costs: Take stock of professional costs such as legal fees, accountant’s fees, banker’s fees before you initiate the investment process!

 

 

Sourcing Investee Businesses

To invest in a business in India, source out businesses to invest in from local magazines, classified, directories and web portals. Information on other businesses which are not listed there can be obtained from third party agents, brokers. Alternatively, you can also check with consultants or CAs and Lawyers describing what kind of business you are looking to invest in. 

Due Diligence Checklist

Reason for investment: Why is the business owner raising investment for his business? Check for obvious red flags like ailing business, financing concerns or court litigations. As an investor, you should look out for businesses that are raising money for expansion and/or diversification.

Credit history of business: Check for outstanding debt, unpaid creditors, and other liabilities – you definitely don’t want to take on liabilities of the owner!

Reputation: Delve thoroughly into the reputation of the business as well as personal reputation of the owner. Visit the area, speak to the local people, and do not restrict yourself to the customers and creditors.

Financials:  Dig deep into the sales pattern, seasonality and periodicity, major cost drivers, a review of audited financial reports for the past 3 to 5 years for fair valuation of business assets.

 

Compliance Considerations

Tax: Your business investment decision will have a few tax implications and you should consult your accountant to take stock of these. For starters, Capital Gain Tax and Stamp Duty are common considerations.

Legal Issues: The commonly applicable provisions are from the Company Law, Income Tax Act, Labour Laws, and approvals by Banks or Financial Institutions, copyrights, patents, trademarks, etc. along with licenses, zoning requirements, insurance coverage and lease rights. There are also special provisions for startup investments, which are worth looking into.

Valuation

There are various approaches to value a business.

Return on Investment: The most common way to value a business is to estimate the percentage return on investment that a commercial investor would expect from the business over a certain period of time.

Cash Flow: The Discounted Cash Flow (DCF) technique values a business by projecting its future net cash inflows over a period of time using the time value of money approach.

Assets: This process entails valuing tangible assets such as land, building, plant, machinery, etc. and intangible assets such as intellectual property and management expertise.

Investment Terms and Conditions

Payment: Decide on payment mode, tranches, conditions for tranches, and arrangements such as escrow.

Documentation: Obtain a receipt against your payment and an original copy of all investment documents.

Non-Compete: It is important that the purchase agreement ensures that the owner is not allowed to set up a similar, competing business of his own post-investment.

Post Investment

Secure rights for attending board meetings, being updated on crucial business changes, and make sure you have a say on important company decisions. Most importantly, build a relationship of trust and transparency with your investee – it can go a long way in making investments smooth and hassle-free!

If you have any queries on the above or about investing in businesses in general, please write to us at [email protected]. Happy investing!

Indiabizforsale.com is India’s largest online platform for M&A, Investment, JV, Partnership, Fund Raise and allied needs. With approximately 20,000 registered clients and a dedicated team of professionals we provide end-to-end services for all needs related to buying/investing in, selling/investment for a business, franchise or distributorship network.

How to Get Investment Easily for Your Business or Startup

Raising investment for business can be a nightmare, especially if you are just starting out or have a small to medium sized business that is still establishing its hold in the market. In this article, we bring together the most important tips to get investment easily for your business or startup.

Visibility: Here’s a question, would you buy something that you never knew existed? No, right? Exactly. Investors would never put their money in something they have never heard of – a problem that plagues investments in SME. Create a buzz around your business – make some noise! And it does not always have to be costly. Post free-of-cost online press releases for your product launch and other achievements. Get people in your network to spread the word around your business. Write interesting blogs, and make sure your company gets the visibility, and not just you. Attend events, present at small gatherings, tie up with entrepreneurship clubs and bond with fellow entrepreneurs. Do everything you can to become more discoverable. It is the key to grabbing an investor’s eyeballs.

Portfolio-fit: Do your research – investors are usually looking for the next fit in their portfolio. Instead of pitching randomly to every investor, pitch to the ones that have a portfolio where your business will be a great fit, or the ones who are adventurous and try new investments once in a while. This way, finding investors is more focused and targeted. These can be individuals or institutions or groups of individuals / institutions. Study your competitors and see where they got their money from – that’s your cue! Franchise investments are a great way to secure investment intelligence and determine portfolio fit for your investment.

Relationships: Until you form relationships, all your research and intelligence are just scratching the surface. Investors and their representatives are people who invest in people. Form genuine relationships – and not just for raising money. Communicate your ideas and learn from theirs, leverage any cross learning you can get from seasoned investors. Wait for the right opportunity to pitch for investment – understand what the investor wants by meeting him informally first. Events are great platforms to network, but the onus is on you to follow-up, connect and create a relationship of value and trust.

Solid Financials: Yes, we are taking you back to the basics, and yes, it’s hard. While you may get an investor interested by networking, visibility and relationships, to sustain his interest, your business must have solid fundamentals. Otherwise they will just feel that you are wasting their time! For small business investment, it is important that you have in place your revenue model, cost drivers, 5-year plan and sales projections, and you should be able to articulate your business strategy that makes you stand apart. You should be ready to pitch your business anytime anywhere, with the numbers at the tip of your hand.

Meticulous Documentation: Investors are demanding when it comes to documentation, and small business and startup investment are no exceptions. Standard due diligence checklist includes company incorporation documents, audited financial statements for at least 3 years, budgets, plans, records, and projections, among others. Even documents such as minutes of meetings, client deals, employee contracts, supplier invoices, maintenance records, lease records, personal credit history, intellectual property documents and licenses should be kept organized in a single folder for anytime access.

Valuation: Suppose you want to buy a toothbrush, and ask the price. But the shopkeeper can’t tell you how much the price is – would you be interested in buying from him? Exactly. If investors get interested in your business, sooner or later they will enquire about the valuation. You must have a fair a reasonable number ready with you, supported by calculations done by your Chartered Accountant. Remember, that this is just an opening price, and not a deal breaker! You can state it as a range and then mention that it is negotiable. You can also ask the investor what he thinks, if you deem it appropriate to do so at this point.

Now that you have a bird’s eye view of raising investment for your business, get started! Stay tuned with Indiabizforsale.com for more articles like this.

Quickly Connect with Investors

Newsletter Issue 40
August 2016
 
Introducing you our New Feature that allows you to Quickly Communicate with Buyers in 2 Simple Steps.
   1. Register / Login 
   2. Send Message to Buy-side listing
 
More than 2800 Business Buyers looking to Buy a Business. Search for your matching buy-side prospect for your business requirement and Send Message to your ideal prospect.
 
2 more Businesses Sold in last 40 days, next could be yours!