Investing in Small Businesses – Sinking Your Money Into Small Business Ideas With Merit

The biggest reason small businesses fail is not for lack of solid business understanding, or market demand, or even mismanagement. The biggest reason they fail fail is undercapitalization. The reason is simple: starting a new business is overwhelming. There are so many things to figure out, usually in a very short period of time. Unexpected and unknown expenses can whittle away any initial investment capital. One important consideration that many new owners fail to calculate into the startup budget is their own burn rate. Very few can expect to see a major influx of clients or customers from day one.

The burn rate of a startup business is simply the amount of cash burned through each day, week, or month, while gaining those all important clients, customers or contracts. Whether or not customers or clients call, the phones must be in service. The office must be maintained at a comfortable temperature even if no one shows up to. Landlords do not care if you expect to double your cash flow next month when your business starts taking off, they want the rent paid now. Your suppliers or vendors are not usually in business to front you, either.

By far, the biggest portion of the burn rate goes to employees and their benefits. You cannot do without the employees you need to get off the ground running. As a business owner, you cannot take over every role and wait to fill the most important positions later. Customers, clients and contractors buy into your people. As a owner, investing in small business means adequate staffing from day one. Your customers and clients will hesitate if your office is staffed only by one overworked employee because she is all you can afford right now. To gain the business, you need to display that you are ready on every angle, employees included.

While investing in small business is considered a gamble, it does not hurt to look around and research a business for investment consideration. The first thing you should do is ensure that the business is simply undercapitalized rather than based on an unsustainable profit model that will keep them in the red for years to come. You may be surprised at how little money it takes to save a properly set up a business from extinction. Many of them close down over an unbelievable sum. If you roll up your sleeves and spread your investment dollars wisely, this investment can pay off in spades.

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