How To Identify Small Business Investment Opportunities

The world of commerce and business is arguably the oldest investment space in human history. From the time of the earliest civilizations to Wall Street and Dragon’s Den, almost everyone with a little bit of capital is looking for a business investment opportunity.

Fluctuating global economies, uncertain market crashes, and inflation force our hand to ensure we have assets and investments that can help bail us out in times of need. Others may find businesses with a clear strategy and a good line of products and services reason enough to back them.

Whatever your reason may be, smart business investment opportunities are the best way to increase your wealth, add to your portfolio, and provide a platform for up-and-coming brands to cement their footing in the industry. But knowing how to identify profitable small business investment opportunities takes skill.

Our post today will help you learn how to identify the best investment opportunities in small businesses and the best platform to source great investment options. By the end of this article, you’ll know how to get started, the risks involved, and when you should pull the trigger and begin.

3 Benefits Of Investing In Small Businesses

Assuming you’re reading this article because you have set your mind on investing in small businesses, it can be a painstakingly complex process trying to convince yourself whether the investment is worth it or not.

Most people aren’t trusting entrepreneurs and startups to invest their funds for a few good reasons. Small businesses inherently pose a lot of financial risk to investors where the possibility of losing your investment is a lot higher compared to traditional investment opportunities.

Most companies go under for any number of reasons that may be out of the investor’s control. Reasons such as lack of product-market fit, team problems, failure to manage tasks, improper strategizing, or marketing problems can all be devastating to your investment plans.

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And since startups don’t have a reputation for surviving very long anyway - with 90% of them failing within the first two years - the idea to pool money towards a company or cause can seem daunting and risky.

However, small businesses do present a host of reasons for their selection. These are:

A. Access To Companies

Investing in Tesla stock isn’t news to anyone and since it is a stable company to invest in, most people are already triple to quadruple figures into it (if not higher). But that’s the biggest issue with large companies: market saturation.

Market saturation entails that a few big companies dominate the investment space with the majority of investors sharing similar portfolios but with different percentage shares. It is the same principle when it comes to buying stocks and cryptocurrency. 

Small businesses and startups don’t have this issue, whatsoever. Since most startups aren’t trading publicly on the stock exchange, not many people can get in on them as quickly or easily. You have hundreds of thousands of companies to choose from. If you are looking to diversify in the most lucrative sector of healthcare and wellness products and services, you can opt for businesses offering medical transcription services or online stores selling face masks and dietary supplements.

If you are looking to invest in more traditional businesses, you can always invest in dropshipping platforms or online thrift stores that have shown decent progress over the years. And this makes the chances of a supposed bidding war incredibly unlikely.

Plus, without large investors, you can ensure that the company trading price remains low enough for you to purchase. Most large companies have stock prices in the double to triple digits per stock, which may make your investment of a few thousand dollars seem worthless compared to the big sharks. The same amount in a small company can give you a seat on the board of directors.

B. Growth Opportunity

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Another advantage that small businesses have over large businesses is their ability to expand and build into greater investments with time, especially if they are managed properly.

Larger companies like Facebook and Google have already cemented their name as industry leaders and the potential for your investment to grow isn’t that high.

Especially if your investment isn’t substantial and ranges in the multiple millions. The bar to capitalize on the company’s “boom” is too high and in most cases, has already gone by. Smaller companies do not have this issue and the room to mature your investment is virtually endless.

Small businesses are mostly startups with limited teams and means of production and are waiting for the right investor to either go big or go home. Sure, as we mentioned earlier, there’s always a high risk of the company folding; but the ceiling for the immense return on investment (ROI) makes it a tempting option for most.

C. Dividends

Your investment pays dividends - except, not always. Most companies are set up to not pay shareholders and investors any incremental sums of money as they grow. These payments are called dividends and do make for tempting options for most investors that may see a steady stream of passive income, as well as see their investment grow in value.

But some start-ups include dividends in the investment agreements which can help sweeten deals for investors. From the investor’s standpoint, it is a win-win situation since they effectively get a sizable share of the company and watch it grow and get monthly or yearly payments on the profit it makes.

5 Ways To Identify Small Business Investment Opportunities

Convincing yourself of investing in small businesses is only part of the plan (even if it is a big part). The other half is figuring out which deals to make and which to avoid at all costs. This part is where you can guarantee that your investments have a good chance of maturing or falling flat.

With the right identifiers, you can make educated and calculated maneuvers to help improve your portfolio. Let's go over a few of them to see which aspects you should be directing your focus towards.

I. Know The Industry And Business Inside Out

There is little point in investing in a business if you aren’t sure of what it does in its industry. Even if you have all the data points at your disposal and have run the numbers to death, you won’t find great potential in your investments if you aren’t passionate about the company’s vision. 

Having an interest in the industry, or appreciating the services or products the business provides to consumers, is important - be it working towards a sustainable future or a clothing brand. At the end of the day, your focus is to increase customer engagement across all channels and sell whatever services or products the company has on offer to consumers. 

Today’s consumer market is very competitive and selective with whom they do business. If you aren’t convinced with the product, it is likely that your customers won’t be either. Feel confident about where you’re investing and get behind the company’s vision.

II. Read Up On The Documentation

It is important to note that there is a difference between a business opportunity and an investment opportunity. The former entails buying a business outright, whereas the latter is the subject of our discussion today.

To make a wise decision, you need to know everything about the business you’re putting your money into. Learn about the market, its industry, its products, its finances, and everything else that you can get your hands on to better understand the industry you’re investing in. 

And never undermine the competition. Analyze and benefit from competitors’ strategies since being well-informed is the only way to beat them at their own game. 

While tedious, the importance of this step shouldn’t be downplayed and can help you make an informed investment decision. Conduct financial projections and other research before you begin. Collect all the necessary data and consider using a relational database system for data pipelining all the information you have to evaluate and identify the motivations and inclinations of consumers and predict future customer demand and sales.

III. Crunch The Numbers

Building on the previous point, you need to have a strong understanding of the finances of the company before you decide to outright invest in it. Public financial disclosures of the company can help you determine its financial health and any long-term projections too.

Consequently, you can also use a cash flow statement, balance sheets, and profit-and-loss statements. These reports will be essential to understand the company’s previous financial history, its current trajectory, and what to look forward to in the future.

This step is essential to know the company’s ability to increase profit, generate revenue, manage growth, and remain financially stable.

IV. Figure Out If The Business Is Ready For Takeoff

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Most investors believe that all the companies they invest in should demonstrate a certain level of industry experience and technical proficiency. While that is a fair demand in bigger investments, startups seldom have these qualities.

But this doesn’t mean that they’re not worth investing in.

In such situations, factors such as experience, leadership, market size, operational efficiency, and ability to manage tasks on a daily basis come together to paint a bigger picture. Product and service uniqueness also play a massive role in determining which space the company fills in the industry. These ultimately should determine whether you should invest in the company or not.

Another consideration is the timeline for when you’d like your return on investment. Business readiness can help you understand how long you’ll have to wait for a complete payout.

V. Knowing Where The Industry Is Headed

The best asset managers and financial advisors would place countless caveats before suggesting any industry’s trajectory. And we will too. But still, understanding market trends is an important data point when looking for viable investment opportunities.

While a company may be doing well at the moment, there is no guarantee that its upward trajectory of growth will continue. It is especially true for companies working with niche services and products.

However, the best investments can withstand industry changes, adapt, and remain profitable in the long run. Let's use 3wishes.com, one of our favorite online stores, as an example. Although it is dealing in a very niche market, by giving the consumers greater value and experience, they have dominated the market. 

Offering theme and festival-based costumes, giving free shipment, and expanding into inclusive sizing ensured that every customer had a similar shopping experience which resulted in extreme brand loyalty. And part of the company’s ability to navigate these changes is down to the experience and knowledge of the management and entrepreneurial teams behind the venture.

Understand that you aren’t just investing in a business, you’re investing in the people behind it. Learn of their background in leadership and trust their vision to help run the company and capitalize on new opportunities or adjust to unforeseeable variables.

Now that you know how to identify a solid business investment opportunity, it is important to learn how to set about finding the most reliable options in the market.

How To Find Great Small Business Investment Opportunities

Investing is ultimately about making money and maximizing profits for yourself. Not every investment opportunity will be an automatically good fit for your portfolio but following the previously mentioned steps to identify great opportunities can get you pointed in the right direction.

Remember, we’re only looking for the most stable and safe investments so thorough research will be necessary.

1. Investment Platforms

Dedicated investment platforms are the best bet when it comes to finding reliable businesses to invest in while getting in touch with the shareholders and management behind the venture.

These platforms pride themselves on their business acumen and have a large and well-researched collection of businesses where you can get started very quickly. Some investment platforms act more as middlemen and help arrange potential investors with businesses needing capital.

If you’re looking for small businesses to source and potentially invest in, SmartMoneyMatch has the best access to offered investments online. We help investors connect with businesses and startups from all over the world and provide a detailed analysis of all options available.

SmartMoneyWatch employs a team of asset managers too and is the complete online platform if you need a place to start your investment sourcing. With all the due diligence taken care of, we take the stress out of research and negotiations and help you pool your capital today.

Think of our platform as eBay for investment opportunities with all the necessary tools and services to help you make the most educated and profitable investment decisions. Our organization works as a networking website too, enabling other investors and businesses to provide their insight on your investment decisions.

2. Crowdfunding Websites

Crowdfunding websites have been a game-changer for most businesses, private vendors, and investors. These websites act as yellow pages and advertisement portals for potential small businesses and entrepreneurs to find investors for their ventures.

Today, crowdfunding websites are a popular destination to find up-and-coming brands with the most out-of-the-box, unique, and sometimes, farfetched ideas to back. Websites such as GoFundMe, IndieGoGo, and Kickstarter are the most renowned websites to know.

Besides funding on the platforms, you can privately contact businesses that pique your interest and go from there. Or, try AngelList which is the alternative to conventional crowdfunding sites and helps connect businesses to investors. The website also has an app portal for incubators and accelerators and even accepts applications from startups for their program.

3. Local Social Circles

If websites and online portals aren’t your cups of tea, look out for potential investment opportunities in your existing social circles since these are likely to be from people you know well and already have personal relationships with.

We’ve all had friends and family members offering stakes in their business idea or startup for funds that they could use to expand or begin working. The chances of you landing a viable option, however, largely depend on the person approaching you with the opportunity and how well they researched it.

Existing businesses are easier to evaluate in this circumstance but in all likelihood, social circles are seldom great places for finding businesses to invest in. It is often down to the casual nature of these pitches and that they can very quickly sour and ruin personal relationships if the businesses don’t perform well.

These investment opportunities are also fairly unreliable and causal in the documentation. Your friends or family will be inclined that you “take their word for it” when proper research and financial forecasting are needed. They may also be lax about dividend payments and loan repayments.

4. Incubators

IT companies, universities, and other business organizations have incubators for startups in virtually every part of the world. These incubators house some of the youngest minds and the brightest talents on offer. 

Incubators are a great place to find small businesses to invest in since these entrepreneurs are enthusiastic, have great ideas, and are new to the business landscape. The last point is a benefit to investors since the total investment will be lower than one from a startup that was sourced organically or through other platforms.

But the relative inexperience of the people behind these startups can be cause for concern too. Since most of them lack industry and professional business experience, you will most likely be navigating the space for them and helping them nurture and grow. Incubators are great for investors looking for a more hands-on approach to their investments.

Conclusion

Not every investor in 2022 will consider investing in small businesses with plenty of other options in stocks and cryptocurrency (and NFTs) available to them. But we hope that with our post today, we have convinced you that startups are still a viable form of investment that could benefit you and the entrepreneurs behind the venture.

With the right methods to identify business investment opportunities and SmartMoneyWatch to back your portfolio, you’re on your way to making smarter decisions and increasing your ROI too.

To know more about our services and how we can help you connect with the right business, please visit our website or reach out to us by filling out this form.

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