A diversified portfolio helps investors to reduce risk within their portfolio. Spreading assets across different investments can allow investors to earn an income even if one investment is not succeeding as anticipated. Investing in a small business could make an excellent addition to an investor’s portfolio.
With reportedly 5.5 million small businesses in the UK, investors have plenty of opportunities to diversify their portfolios with upcoming companies. Of course, investors need to know what factors to keep in mind before diving straight into an investment. EIS investment opportunities can benefit investors and businesses alike. Investing in EIS schemes will help the overall economy, too. Here are a few things to look out for if you’re interested in investing in small businesses:
Solid Business Plan
Any start-up will have created a solid business plan before they started operating. A solid business plan helps to form the foundation upon which the company is built. It helps to guide the team toward the company’s set goals, which can support the business in its mission to grow and expand.
Review the business plan of the company before making any decisions. Look for any strengths and weaknesses in the plan and raise any concerns you have with the small business. Find as much information as possible to help you with your decision-making. A solid business plan is a promising sign as it shows that small business leaders have put careful thought and consideration into their company.
Look At The Numbers
Aside from reviewing the business plan, look at the numbers for the company. When investing, your primary goal is to make money from your investments. This is why it is crucial to look at the numbers from a small business before investing. See if the small business is in a position to achieve the financial targets both parties want to achieve.
If there is anything that raises concerns, flag it up with the small business for further questions. You want to know when you should expect to see a return on your investment. This should be something that the small business provides for you when asked. If not, this could be a concerning issue to keep in mind. Resolving these issues before agreeing to invest could make a noticeable difference to the investment.
Tax Relief Opportunities
Investments, regardless of type, will be risky to some extent. The volatility can vary depending on the choice of investment. Investing in a small business will carry risk to some degree. However, like with any investment – when it goes well, it goes very well. Choosing to invest in a small business could be a worthwhile investment choice. Many small businesses are run by an enthusiastic team with innovative ideas.
Investing in a small business can come with some risks. Fortunately, there are tax relief opportunities available. The EIS tax relief opportunities is something that investors should consider utilising to invest in early-stage businesses with strong growth potential, whilst taking advantage of being able to claim income tax relief on up to 30% of the amount invested into qualifying shares.
Review Marketing Strategies
Marketing strategies can help to increase the exposure of a company. If done successfully, it can help to generate new leads for the business, which could lead to more sales for the company. Of course, an increase in sales is a positive sign for the business and investors.
When reviewing the business plan, look at the marketing strategies for the company. See the company’s plan for marketing the business in the future. Additionally, take note of the brand’s image online. A positive online image can help a business to attract new clients. Companies should know how to create and maintain a positive brand image.
Consider Company Culture
Employees can influence the success of a business. They are the face of the company, the ones who interact with clients and complete the work. When looking into small businesses to invest in, consider the company culture. Ask the employees if they are happy in their roles and feel supported by the management.
A happy workforce are more likely to be productive. A productive workforce will help the company reach their targets sooner than expected. This is a positive sign that the investment could be successful, especially in supporting the company.
Decide If It Is Worth Pursuing
As you begin to make your decisions, keep some of these tips in mind. Various factors could influence how successful a company is. As an investor, you want to be sure that your investment could be worthwhile. Of course, there are no certainties when it comes to investments, which is why research is key. Research before investing in EIS schemes, and ensure you have more of an understanding on EIS investment in general. For example, gains on EIS investments are not subject to Capital Gains Tax (CGT). Conduct thorough research into the small businesses you are considering investing in to feel confident in your investment choice. Leave no stone unturned, especially when investing in a small business.