A few notes on investing in a business

BONNERS FERRY — Starting a business can be rough, with planning, researching, and the funds needed to begin a new business venture. Not only does the entrepreneur need a thorough business plan, but knowing what kind of business to open, such as a Limited Liability Company (LLC), or a limited partnership.

With many different variations of companies, the main goal for investors is to be knowledgeable about the business plan and purpose, followed by a solid plan to keep the investment structured and protected. With any business or company, there will be a rise and fall in profits, and the structure of the company being invested in makes a great deal of difference. It boils down to the investor either taking the position of equity or debt, sometimes a hybrid of the two.

With an investment in equity, the investor purchases a slice of the pie. They provide the cash, and in return, receive a share of both profits and losses.

There is an entrepreneur that wants to start up a company. He has a good idea, plan, and knowledge, but is in need of investors to meet the vision of the company. He has $250,000 invested in the company, and he finds three more people to invest the same amount of money in order to meet the needs that would make the company successful. Each investor, if they were to match the initial contribution, would now be an owner of a fourth of the company, making it an equity investment. That was a simple example of what an equity investment is, but it can get much more complicated, especially if there are more investors, and depending on the entirety of the contribution.

“An equity investment in a small business can result in the biggest gains, but it comes hand-in-hand with the most risk.” states Joshua Kennon in his article. “If expenses run higher than sales, the losses get assigned to you. A bad quarter, or year, and you might see the company fail or even go bankrupt. However, if things go well, your returns can be enormous.”

If the investor were to decide on a debt investment, it works similar to a bank loan. The investor supplies monetary funds, and in return receives a set interest payment, and eventually a full repayment of the loan.

Researching all options and finding what is best to invest in is key to making a successful decision. Statistics state that within the first five years of a business operating, it will see losses and gains, and the long term state of the business relies on how the business owners or partners adjust to the fluctuations.

For example, in Boundary County during the winter, the majority of the customers at local businesses tend to live locally, but during the summer months, the county has an increased tourist rate. People from all over the world travel through the county, and they leave their mark with not only the people they meet, but with the economy as well.

This bit of information has led local business owners to shorten their hours of operation during the cold months, and lengthen them in the tourist months, which in the long run makes the company more money. The employees are not being paid to be at the establishment needlessly, saving an hourly wage for the business owner during slow days or seasons, and during busy days and seasons, an extra person helps the company make an increased profit by assisting with quick, convenient, and available services, which in turn brings business. The business may not have needed that extra person in the slow months, but they became invaluable during the busy days.

A common phrase is, ‘it takes money to make money.’ While that saying may have some merit, it is the investment of not only finances, but hours of time, effort, and planning, coupled with a goal and the drive to achieve it, that makes a business successful.

A reason that people invest in companies is that they anticipate the growth of the company they want to invest in, and then wait for their investment to propagate. Many people look for an investment consultant to assist with the many investment decisions.

Being a successful business owner and/or investor, relies on the parties involved to have a solid strategy in place in order to bring in the most capitol for the investors and business owners, as well as assisting with the support of the local economy.