Most other investment vehicles are passive in nature. Investing in your own business usually requires much more active involvement. Nevertheless, upon coming into a lump sum many people consider the merits of investing in their own business. Setting up a new business is a very complex issue. Once satisfied that your business is attractive from an investment perspective, many other important issues, some of them not even financial in nature, need to be considered.
There are many routes to investing in one’s own business. Some of these include:
- Setting up the business from scratch – probably the most challenging route, as it involves venturing into the unknown.
- Buying a franchise – Usually entails paying considerable goodwill. A proven franchise has proven products, with proven marketing methods and track records.
- Buying into an existing business – this option is less risky than starting up your own business. However, you have to make sure you are not buying anybody else’s problems.
- Investing in a partnership – another alternative is to invest in a portion of a new or existing business. This van help to spread the risk and workload.
- Setting up a sideline business – people going into retirement often do this. They set up a little business, often in a field that started out as a hobby or interest, to generate earnings to supplement their income.
- Expanding your existing business – the questions that must be asked here are: is expansion necessary? Is it viable? etc.
The amount of capital required to successfully start your own business is usually fairly high, and just about always underestimated by the budding entrepreneur. It is also important to note that the investment is not limited to the money you are putting into the business. With most small businesses there is a large amount of personal liability as well. This liability will be in the form of sureties that may be taken out. Small businesses also carry quite a large amount of solvency risk, and investors have to be aware of this. Also, insolvency may not be limited to the investment you have made in the business, but can result in the loss of other assets that you own, such as your house or car.