Whether you're a seasoned investor or an individual just looking to put your money where it will see a return above the present pitiful saving account rates, small businesses can prove a rewarding prospect. Every world-beating business has to start small. Those with radical new ideas or unproven technologies struggle to win support from the banks can be the companies that change the way we live. However, for every start-up firm that goes on to be the next Facebook or Vodafone, hundreds will fail within their first couple of years. Investing in small companies is a high-risk activity, but it's also a gamble that can pay off spectacularly.
Spotting potential and taking advise
If you're new to the investment game, it's good to go for areas you already know something about. This way you have the ability to accurately assess a new company's potential. If you have an interest in the field, you have a better chance of buying shares at a bargain price before the city investors catch on. It's always a good idea to listen to the experts however, or at least to take advantage of whatever information is available, especially on the internet. The golden rule is never to put all of your eggs in one basket, especially where small businesses are involved. Assume a certain amount will go bust, don't risk more than you can stand to lose and be prepared to wait a long time before you see a profit. Also, be on your guard against fraud, especially if investing online see quantumfinance.com.au.
In the UK, several government schemes offer tax relief to those investing in small, unlisted companies and start-ups. These can offer a buffer against losing money on your investments. The Enterprise Investment Scheme (EIS) offers 30% tax relief up to £1m per tax year on profits and loss, while the Seed Enterprise Investment Scheme, specifically relating to start-ups, offers a 50% break. Not all businesses qualify however, and not everyone can take advantage of these breaks, so make sure you have all the facts before going ahead.
The risks of investing in small businesses are high; you'll need good strategy and more than a little luck to come out ahead. But you'll have the buzz of championing the underdog, and hopefully the thrill of seeing it grow into a serious contender.