What you should know before investing in a small business

Investing in a small business can be a lucrative investment opportunity. However, before you hand any money over to a small business owner you should take the time to thoroughly research the small business and learn everything about it. It is crucial to understand that while you can make a lot of money investing in a small business there is also a lot of risk attached to this type of investment. When you are aware of the potential for risk you are able to make a much better investment decision. There are many different aspects that you should educate yourself about when it comes to a small business investment. In addition, you should keep in mind that investment experts stress that you should never invest money that you can't afford to lose or that has been earmarked for another purchase such as: buying a house, funding an education, or some other large purchase. Here is what you should know before investing in a small business-

- Know that it takes time and effort-It is important to understand that researching a small business investment opportunity can take a lot of time and effort. Successful investors of every type will spend more time researching their investment opportunities then any other part of investing. This is also true for small business investments. If you are not willing to commit the time and effort that is needed then you may want to consider putting your money somewhere else.
- Know how the business is run-It is crucial that before you turn any money over to the small business that you are considering investing in that you have a complete understanding of how the business runs. Savvy investors understand that they are not really investing in the product or service that a small business sells but rather the people who run the business. You will want to have complete confidence in the management of the business and feel that they have the expertise and experience that is needed to make the small business a success. If you don't then you should move on to another small business investment opportunity.
- Know how long the business has been in existence-It is important to understand that the newer the small business the more risk that you are taking on. Generally if a small business is going to fail the chances are much higher at the beginning of the business lifecycle. However, you should keep in mind that while a more established small business has a lower risk of failing it does not completely get negated at any point. Small businesses of every size, type, and age are at risk of failing.
- Know the sales plan and marketing plan-Any small business that you are considering investing in should have a well developed sales and marketing plan. When a business owner has a written (and well researched), sales and marketing plan this is an indication that he or she has done the appropriate amount of market research and knows how they will make their small business successful. The bottom line is that a potentially successful small business will have an equally strong sales and marketing plan. If your small business investment opportunity does not, you are better off moving on to consider another small business to invest in.
- Know about the industry the small business is in-While you don't need to know everything about the industry that your small business is involved in it pays to know at least the basics. Before you commit any of your money you should make sure that you have a least a basic understanding of the industry. The bottom line is that you should never invest in a small business that you don't understand.