Everyone wants to be their own business. The dream of tirelessly working day and night to become successful has been seen by many far too many times. But not everyone gets the courage to just leave their job and invest in a small business. It sounds too risky. A dream can wait but running a household with financial security is far more important.
However, small businesses if taken up, and worked upon with all might can surely ensure a life of financial independence and can help raise the owner’s standard of living by a humongous amount. You just have to take the risk. Investing in stocks and mutual funds are also another way of earning side income from investing in someone else’s business and getting your cut of the earnings.
But for the ones who want to invest in their small dream (business), profits can come to be much bigger than can ever be imagined. Hard work is all it takes. If you have the right skills, the right temperament and are not afraid of taking risks, you can go all the way and make your small business investment a success.
There are usually three ways you can generate wealth from a small business investment and knowing these can help you in the long run. It is essential to remember few things before jumping head on into a venture. Don’t forget- the rabbit never one the race right? You have to be wary of opportunities that look too good to be true and have to understand how the financial world works. There is no such thing as quick money if you want to generate a lot of wealth.
What you pay yourself
If you have invested in a small business, you have to know that in the beginning, you will not be able to make a lot of money. Your company will not generate more than what you need to sustain on the salary you pay yourself and your family members for working on payroll. This is a good thing though because what you have done is create a job for yourself. And now you have to see the drawbacks and benefits of self-employment. And so you don’t end up taking out money for spending on things you currently don’t need. You don’t become sporadic.
But this can sometimes mean that business owners can become so focused on sustaining and paying salaries to themselves and family members that they don’t get to grow. They never make it big and their sales remain average. A good escape from this for owners can be to not leave their day-job and keep their venture a bit on the down low till they can make enough to support salaries and save at the same time.
Once a business starts growing, profits can be seen even after salaries and wages are distributed. What you as the business owner decides to do with profit is completely your wish. You could reinvest these profits for further expansion of your venture, you can declare a dividend (in the case its a corporation), you can distribute the profits (if you are limited liability company or have limited partnership), you can use the money personally, you can save it, invest in stocks, bonds, real estate, mutual funds, pay your debt, improve your lifestyle, or go on a vacation. You can even give it to charity if you are being too generous. It is completely your choice.
Whether you decide to reinvest your dividends or not decides your company’s future and yours. If you want to have a lavish lifestyle now, you can spend the dividends now. But if you want to have a comfortable life later, then you should definitely take risks and reinvest your dividends to enjoy more profits after some time. The starting years are the crucial ones, work as much as you can. Have a relaxed life later. For small business investors, dividends generated from profits can be the second most common source of wealth.
Selling the firm for maximized profits
If you made it big enough, your company has the potential to be sold for a lot of money. Investors are always looking for potential companies to buy. Your company is attractive enough? Has great sales? Investors definitely want to own it. You can even sell stocks and shares of your company if you don’t want to sell it completely. Most of the time, the primary source of value for any business is its earnings power and not the assets it has. Your machinery isn’t worth much if bought on the liquidation market. But if it is bought as a running in a plant that generates profits, it is definitely valuable.
Investors look at the company’s earnings, its potential to make profits, debt levels and the economics of the industry as a whole to decide whether they want to buy or not. If it looks profitable to them, you can end up getting more than the value of your company. Let’s say your company earns $2million a year. You could end up selling your company for maybe $20million. This is the ‘capitalized’ earnings value of your firm.
A lot of business owners start a business only with the intention of selling it for a great amount. They want to take it to the point where earnings are maximum and the company is attractive enough to be sold. This is called ‘liquidity event’. Venture capitalists are always looking to back burgeoning enterprises to take them public in an IPO or selling them to a bugger player in the market in the future.
It is up to you what you want to do with your small business invest. Keep it, sell it or turn it into a gigantic corporation. It is your dream. A small business investment can be capitalized upon if done right.
Think first. Take the risk. But don’t be erratic when spending the first profits!!
Go chase the dream and earn some money!!