8 Essentials of Small Business Investing: Part 1

Last updated: 2021-05-28 (originally published on 2019-09-19)   — by Luke Loftin

Small business today is the backbone of the economic system of most countries. But it constantly lacks funds that can be borrowed from the bank and other sources. And at this time, even those companies whose chances of obtaining a loan on decent terms are equal to zero can attract investment.

These can be various startups, supported solely by ideas and scientific developments. This includes the smallest business entities – micro-enterprises; young organisations working in the market for a short time; enterprises with simplified accounting; firms that cannot provide collateral and guarantor.

Here are the first four points that you should pay attention to before investing in a small business.

Debt Load

Obviously, companies that are in debt are in most cases not worth the investment. This means that they did not have everything that we will list out over these two articles. 

However, keep in mind that the opposite is also possible. It is possible that a promising company was in a difficult position due to circumstances beyond its control. Another question is why the contingency was not foreseen, but sometimes it’s enough to cover the debt with the help of investments and give a little more to the start, and the company will go up at a rapid pace.

Emergency Fund

This is a little to what we talked about in the previous paragraph. When a company has an untouchable reserve for an emergency, this is an indicator that its CEO (which we will talk about in one of the following points) really looks ahead of things. This will make your investment less risky, if only due to a reasonable approach to business.

And in this context, you should ask the question: why does the company need investments, if it has the ability to maintain and replenish the reserve fund? Listen to the answer, evaluate its adequacy and one more item on the checklist will be passed.

Business Plan

White paper for a startup or business plan for a company, is a document that already contains a lot of the answers to your questions and gives a comprehensive view of the business and its prospects. Experts from LeadsMarket recommend starting the assessment of investment attractiveness from this point, and only then move on to the rest.

Business Goals

We could have chosen to write about the goals in the previous paragraph about the business plan, however, we decided to create a separate item because of the importance of this point. The business goals of a promising company should be:

    • real,
    • measurable,
    • socially useful, and
    • aimed at growth and development.

If any of these points are not met, or you have doubts that a particular goal can be realised in practice, it may be worth revising the business plan and strategy, or abandoning investment in this company.

Tune in next week, where we’ll reveal the final four points to consider before investing in a small business.

Luke Loftin is a writer and editor based out of Los Angeles. He specialises in finance, as well as health and wellness. In his free time, he enjoys watching Astros baseball. You can find him on LinkedIn.

This article does not constitute legal advice

The opinions expressed in the column above represent the author’s own.

Start managing your legal needs with Zegal today

Tags: capital | investment | SME | Startup | z-syndicate


Like what you just read?

Subscribe to our newsletter and be the first to hear of the latest Zegal happenings, tips and insights!