How to Invest in a Small Company

Bankers can make referrals to small businesses in search of capital.

Small businesses in a variety of industries have the unique opportunity to launch with little overhead and few employees. A small team or individual committed to investing sweat equity in a company can generate a significant return on investment. If you are looking for ownership in a business but are not ready to purchase a business on your own, you may pursue investment in a small company. Opportunities to invest can be located with the help of a business broker or a private banker who have knowledge of entrepreneurs who might be seeking additional capital.

Instructions

1. Locate a business broker. You can find business brokers by visiting the website for the International Business Brokers Association. These websites offer a nationwide search of brokers. Business brokers have relationships with entrepreneurs looking for exit strategies or financial partners for their businesses.

2. Locate a private banker. You can find a business banker at the branch of a local bank. You should visit several banks to speak with their business or private banking representatives. Leave your contact information and information on the type of investment you are looking to make. When entrepreneurs request additional capital from a bank, the banker can refer them to you. Banks rarely finance investments at 100 percent and you can provide the difference in capital to complete the financing.

3. It is imperative that you review the financial statements of the business prior to investing. Ensure these documents were prepared by a Certified Public Accountant. If the business is in its start-up phase, review the company's business plan to ensure the methods and projections are suitable for your investment goals.

4. Hire a lawyer to draw up the legal contracts necessary to complete the transaction. Depending on your accreditation or experience as an investor and the amount of money you are looking to invest, the law may require more documents.

Tips & Warnings

• Seek to invest in industries you have experience in so that you have an understanding of how the financial statements of the business relate to its success.

• Reduce the amount of your investment by 20 percent as a contingency for legal fees since they can get expensive depending on the nature of your business deal.

References

• Go 4 Funding: How to Become a Venture Capitalist

Resources

• IDDA: Business Brokers Association