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How to invest in a small business or start-up?


Just like a stock or real estate investment, all people can try to start their own business. Either you create the business by yourself or join a partnership with other people, you have to invest significant amount of time and money. Therefore, it’s not for everybody. But I can see a lot of entrepreneurs investing in both the stock market, real estate market, and businesses.


Small businesses are usually focusing on local market with quick revenue, while the start-ups are focusing on big plan to disrupt the market with more funding requirements.


Here we will present a very comprehensive guide to discuss all the important aspects of investing in a small business or start-up, focusing on the following topics:


1. Business ideas, products and services;

2. Business model and business plan;

3. Funding;

4. Hiring;

5. Marketing;

6. Operation: registration, accounting, tax, legal, IT, etc.


Part 1: Business Ideas, Products and Services


To establish a good business, firstly you have to get a good business idea. There are too many businesses in the world, so what can make your business idea standout?


Some of the business founders have business ideas from their jobs, which are what they are already familiar with.


Some of the small business owners just do the small businesses like doing the jobs, such as tutoring, babysitting, cleaning, and meal delivering, etc.


Some of the more competitive areas may create a lot of value, such as operating an Amazon store, becoming a Youtuber, or designing websites for clients.


You can refer to some existing business ideas, so that you can have a good idea of viable businesses. If you have some special skills or resources, you could be standing out with just mediocre business ideas.


However, if you want to grow your business from small to big, you have to have an outstanding business idea which will help create valuable products or services.


You can refer to the following article for some ideas, but you need to think of a unique and better idea by yourself.

60 Small Business Ideas


With good business ideas, you can design the best products and services that can stand out in the market.


Part 2: Business Model and Business Plan


After generating a good business idea, you need to think more about the details of the business. The most important concepts include business model and business plan. The focus of a business model is how to make a profitable business by creating value for the clients; while the focus of a business plan is to present business strategies and expected financial performance, probably with a purpose to get some funding.


You can refer to the following free course to know more about how to design a business model:


A Free Business Model Canvas Course


With a good business model, our focus will be how to create a good business plan.


The biggest mistake you can make is to start a business without any plan.


As popularly said "if you failed to plan you are planning to fail" that's why you must have your business plan in place which will be your roadmap.


Many business owners make the mistake of only writing a business plan when they need to secure start-up financing.


Regardless, your plan is far more than a document for banks and investors to read; it’s a worthwhile roadmap for launching and growing your business.


Before starting a business you need to conduct thorough research on the factors or resources that are needed for the success of your business.


When you have a plan, you will not only identify the potential weaknesses, opportunities, and threats…


But your plan can also help you make informed decisions about your enterprise before you even invest anything in it.


And today, we summarized the key steps on how to write a business plan.


1. Do your market research


Do your research to understand the market and audience you want to serve better.


And make sure you understand what your competition is doing and state how you could do it better.


Because lenders and investors will want to know what sets your product apart from your competition.


And only market research can help you quickly answer that question.


2. Describe your company


The next thing is to describe what your company does in detail and includes the following:

  • Your business’s registered name.

  • History of your company

  • Nature of your business

  • Address of your business location.

  • Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

  • And other information people would likely want to know about your business.


Your company description should also define your business structure like:

  • sole proprietorship

  • partnership

  • or corporation

3. Executive summary (the first and key part of a business plan)


Think of the executive summary as your "micro" pitch so it should include information that will resonate with lenders or investors to put their money into your business.


And it includes a mission statement, a brief description of the products or services offered, and a broad summary of your financial growth plans.


It's also not limited to a synopsis of your business concept, key objectives of your business and your plan, ownership structure, management team, your product or service offering, target market(s), competitive advantages, marketing strategy, and a summary of your financial projections.


Note: you can write your business executive summary last. That will even allow you to add more necessary information that you might find while writing other parts.


4. State your business goals


An important part of a business plan is an objective statement. This section spells out exactly what you’d like to accomplish, both in the near term and over the long term.


5. Business Overview


The business overview is a component of a business plan that provides a general explanation of your company.


By reading this section, the audience learns about your company and its structure, values, mission, and offerings.


It can also demonstrate what makes your company unique from competitors. This section of the business plan is sometimes called a "company description "or "summary." (from Indeed)


In your overview, include details regarding your business’s history, vision and/or mission, objectives, and ownership structure.


6. Describe Your Products and Services


This is the part of your business plan where you discuss in detail the product or service that you offer or trying to offer to the market. You should include the following:

  • An explanation of how your product or service works, including features and benefits, competitive advantages.

  • The pricing model for your product or service.

  • The typical customers you serve.

  • Your supply chain and order fulfillment strategy. If marketing a product, how and where your products will be produced.

  • Your sales strategy.

  • Your distribution strategy.

7. Industry Overview


Industry Overview is the information concerning the industry of your interest.

You will use an industry overview to make decisions about investments, entering industries, and other activities.


There are three major parts when it comes to an industry overview:

  • The underlying forces at work in the industry;

  • The overall attractiveness of the industry;

  • And the critical factors that determine a company's success within the industry.

This allows you to predict the size, growth, and market purchasing power.


8. Marketing Strategy


What is a marketing strategy?


According to Investopedia, a marketing strategy refers to a business’s overall game plan for reaching prospective consumers and turning them into customers of their products or services. A marketing strategy contains the company’s value proposition, key brand messaging, data on target customer demographics, and other high-level elements.


A thorough marketing strategy covers the four Ps of marketing: product, price, place, and promotion.


In this section of your marketing plan, you describe your target market segments, your competition, how you’ll differentiate your products or services, and your products or services’ unique selling proposition (USP).


You will also discuss product or service pricing and promotion, including how your promotional strategies will appeal to each of your target market segments.


Provide a plan of conventional and guerrilla marketing tricks, such as trade shows, press-magnet events, social media marketing (e.g. Facebook, Twitter, etc.), networking, and print, media, or online advertising.


9. Financial Plan


Some believe this is the most important part of a plan – so much so, it’s worth dedicating up to 80% of your time to writing this section.


According to Investopedia, this section should include a company's financial planning and projections. Financial statements, balance sheets, and other financial information may be included for established businesses. New businesses will include targets and estimates for the first few years plus a description of potential investors.


All these processes required a lot of research so that you can have reliable information that will help your business to grow.


And if you can't handle everything yourself you might consult an expert in this field.


Part 3: Business Funding


After creating your business plan, you may start to work on the business funding.


Business funding could be the most important part of starting a business. Without enough funding, it is impossible to execute your business plan however good it may be.


The type of options can you go decide to use will depend on factors such as size, industry, the amount needed, time frame, and purpose, here are eight possibilities to consider:


1. Family and friends


One of the easiest ways to generate funds for your small business is money from friends and family. This is also called “Bootstrapping”.


And it's not required heavy and a lot of financial background requirements or other prerequisites since you are getting it from those that trusted you already.


"Uncle Charlie is going to be more willing to believe in you without requiring extensive financial documentation," said Joshua Oberndorf, a manager in the private business services group at EisnerAmper.

  • This is easier access to needed funds without high-interest rates.

  • But failure to pay back the funds when due, or abandoning completely, could stale family relationships.

"Money is as much accounting as it is psychological," Oberndorf said.


However, there could be tax consequences sometimes. For example in the US,


According to the IRS, family members are supposed to charge a minimum interest rate to avoid adverse gift tax consequences. The IRS publishes these Applicable Federal Rates (AFRs) every month.


2. Banks


The most trusted and well-established source of funding. This might be a lower cost compared to other options.


Banks also offer you the ability to grow the amount you can lend over the period and strengthen your relationships with them in the long run.


Banks mostly have formal lending requirements, including a good personal credit score and sufficient cash flow and income.


This might be out-of-reach for you as a credit borrower, and the process can be slow, sometimes several weeks to secure a loan.


But if you can tender their requirements and meet their needs, then, getting credits from them becomes easier.


Also, take note that bank rates can range from around 3% to about 7%, according to LendingTree.


Consider a smaller bank, which may be more willing to grant credit and walk you through some of your options, said Matt Barbieri, a certified public accountant with Wiss & Co.


In fact, when interest rate is low or close to zero, bank loans could be a very good choice for business funding.


3. Online lenders or funders


You can also generate funds online and quickly have access to capital, mainly through a simple process – online.


You can check out the best online personal loans here


Last note: make sure the company you are trying to get funds from has a good reputation and multiple good reviews.


And also make sure to compare multiple options to each before making decisions.


It's also important to compare and contrast the total cost of capital, taking into consideration the interest rate (if applicable), fees, and early payment penalties.


To understand better the true cost of a merchant cash advance, make sure to use an online calculator.


Note, when interest rate is going higher, those online lenders can be costly to borrow fund.


4. Small Business Loans from Government


Government usually provides preferential loans to small businesses. For example, the SBA (Small Business Administration) loans in the US.


You can generate funds from federal government banks to finance your small business.


Loans are varied and have different requirements and your approval of your loan might take some days.


Because those loans are with better terms, there will be lots of competitions. You will need to spend some time and efforts for the application.


5. Credit cards

Credit cards could be a good option for you if you need short-term funding and when you are certain you can pay off the debt before interest starts to accrue. Business cards tend to carry higher credit limits than personal cards.


But interest rates can be high. Cards that are well-ranked by Creditcards.com offer APRs in the range of close to 10% to nearly 35%, and some cards charge an annual fee. Generally not a good option for large funding needs.


"Don't rely on this as a sole source for funding growth; if you are too high risk for the other categories, seriously consider that before taking on consumer credit as a business," Barbieri said.


6. Investor Equity


The sum of the value that would be returned to your company's shareholders or investors after all your debts were paid off and your business assets were liquidated it's called equity.


Equity is used as capital raised by a company, which is then used to purchase assets, invest in projects, and fund operations.


A firm typically can raise capital by issuing equity (by selling a stock) to the investors and investors usually look out for equity investments as it provides a tremendous opportunity to share in the profits and growth of your firm.


Also, equity can be referred to as investors' stakes in your company which is depicted by the portion of their shares.


So private grants, private equity, and individuals with money to invest can serve as sources of funding. Most popular choices include angel investors and venture capitals.


But you have to find the right person for your business that will contribute greatly towards your business growth.


"Spend as long as you can dating before picking your mate," Barbieri said. "Make sure their goals are aligned with your goals or it will end badly."


Craig Palubiak, president of Optim Consulting Group, recommends owners tap their network and affiliate with start-up communities and local organizations to make investor connections.


7. Crowdfunding


According to Investopedia, “Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture.” 


Crowdfunding allows you access to capital without piling on debt, and with the ability to raise money and increase awareness of your brand among potential investors and customers while test-marketing an idea.


However, the success rate could be low. There also some fees associated with certain platforms. Launching a successful campaign takes marketing resources and time as well.


There are the most two famous crowdfunding platforms:


Kickstarter was founded in 2009 and it's another popular choice when it comes to generating funds.


As of May 29, 2022, Kickstarter has successfully funded over 220,000 projects, with more than $6.6 billion pledged across all Kickstarter projects.


It is the most popular crowdfunding site for aspiring businesses aiming to raise capital and reach a larger audience.


Indiegogo is a platform for entrepreneurs to launch new and groundbreaking products. They help surface innovations in tech, design, and much more, all before they go mainstream.


The Indiegogo community has helped bring more than 800,000 innovative ideas to life since 2008.


Today, their group of backers is more than 9 million strong, representing 235 countries and territories. Always on the lookout for new solutions to everyday problems, our community thrives on making clever discoveries before everyone else.


Indiegogo is more flexible and less restricted because it gives backers control over their choices.


That's whether they want fixed or flexible models for their crowdfunding, unlike Kickstarter.


Kickstarter releases funds only after the campaign has attained its funding goal.


While Indiegogo allows the campaigner to receive funding pro-rata, or wait until their target is hit.


According to Investopedia, crowdfunding platform fees range from 5% to 12%. Look out for punitive fee structures before choosing a crowdfunding platform


8. Federal, state, and economic development grants


Grants are basically free money. But there are lots of requirements, and your business should be very special.


Those grants are typically non-dilutive, and can be small or large.


There can be administrative hassles and restrictive eligibility requirements.


This could be a good option if you are a company that can be deemed "important" to the infrastructure of your region, Barbieri said.


9. Government grants


In most countries, government will provide grants for important businesses. For example in the US:


Begin your search for a grant from the federal government at Grants.gov. This government site offers the most comprehensive database of funds the government is going to give away.


There are thousands of grants to apply for, with opportunities for companies from all backgrounds.


Keep in mind that not all assistance flows directly from the federal government to small businesses.


Some funds are distributed to state and local governments and agencies, nonprofit organizations, and institutions of higher learning.


These entities, in turn, distribute the funds or use them to provide technical or educational assistance on a local level.


In addition to the programs listed here, be sure to check with your state and local governments and use the resources listed below. When searching through grant and contracting options, note that you may qualify for more than one program. Source: Forbes


In summary, there are many ways to obtain the funding for your business. You need to spend some time on the research, and find the best funding options with the lowest cost.


There is usually a platform created by the government to provide an integrated portal for your funding requirements. For example in Toronto, Canada, you can find most funding options at one website:


Funding for Small Businesses – City of Toronto


Part 4: Business Hiring


When you obtain the required funding, you can use some of the funding to hire people.


It is very difficult to run a business just by yourself. You need to hire most qualified employees to help execute your business plan.


There are some key steps to help you hire the best employees.


1. Evaluate the available positions


Sonya Schwartz, the founder of Her Norm, said this step is important to prevent redundancy of positions in the company.


“The best thing you can do is approach the process with the mindset of filling needs, not desks,” Rich Deosingh, district president for the Robert Half office in Midtown, New York, added. “You are looking for the best person to fill a specific need, not just getting someone in and calling it a day.”


2. Understand your dream Employees


Hiring the best candidate for your business is not magic. That's why you should be crystal clear about WHOM you want to hire.


If you can picture and describe the types of people you want in your organization clearly, hiring them will become easier.


You can hire someone based on their expertise because you need their services to solve a particular problem that you have no idea about.


You are bringing this type of employee into your business to use their expertise to drastically improve your business.