How To Invest In Businesses?

Running a business is a challenge. Especially when starting your first one. But once it starts growing, it’s easier to keep scaling.

Whether you want to be an entrepreneur or an investor, opportunities are everywhere. There are products with low competition, there are great companies with not enough funding. Whatever you do, you can learn to leverage your money.

The problem is, most projects aren’t worth it. 90% of businesses fail, either due to lack of funding or market demand. And when investing in your first business, you must follow a proven business strategy to beat the odds.

What makes it so hard to invest in businesses and profit?

It’s not enough to spot the business opportunity. You have to get through the noise and find the real deal.

As an entrepreneur, it means there are hundreds of niches you could try. As an investor, there may be dozens of companies that seem like the right choice. The right investment depends on how your research, review and follow up on these opportunities.

Here’s how to invest in businesses, whether it’s a public company, a small business, or your own.

How To Invest In Businesses?

For every business, there’s a different way of investing. If it’s a large brand, it may be as easy as opening a trading account and buying stocks. If you’re the business owner, investing becomes a wider concept (investing in your products, marketing, tools, team, yourself…).

Generally, your investment options are:

a. Getting “investment products:” stocks, bonds, futures, ETFs, mutual funds, commodities…

b. Acquiring the company, either by owning a piece (equity) or buying the business (ownership)

c. Starting your business (entrepreneurship)

If you’re wondering which one you should do, look at investment preferences. What risk/reward are you willing to take? Do you prefer passive income or having more control over the business?

To invest in public businesses, you buy their stock (or any product) from a broker platform. However, this “ownership” doesn’t offer any privileges unless you own a big percentage. It’s a passive investment that gives control to the company.

Small businesses offer more benefits, assuming you can manage the risk. To invest in private companies, you contact their financial team and make an offer. Once you have enough equity, you can decide how to run the business, along with the insider team.

It allows you to earn dividends while controlling part of your investment.

When it comes to investing in your business, it’s a negotiation between market demand and risk management. You look for a product people want and see if it’s worth the cost and uncertainty. Assuming it succeeds, you then reach more people by reinvesting.

Before making your choice, it’s worth comparing each option. While each one is different, all three models follow the same process:

  1. Market Research
  2. Profitability Analysis
  3. Business Plan
  4. Negotiation/Closing
  5. Performance Tracking

Here’s how it applies to each investment style, along with its biggest pros and cons.

How To Invest In Public Businesses

Public companies get thousands of investors. Because who doesn’t want to invest in a business that’s already working? For better or worse, this introduces the trading factor.

Yes, you can profit by predicting the fundamentals. What happens when thousands of people do the same? They buy and raise the stock price, fulfilling the prophecy.

Unless you want to get into trading, long-term investing is the most objective method.

Market Research

Market research starts with defining what you’re looking for. Large-cap companies offer stable lower returns, while micro-caps are more volatile. Both are effective depending on your investment amount.

You may think you know what you’re looking for until you feel overwhelmed by the many options. One way to regain clarity is knowing what makes a bad investment, and filter out these companies:

  • Businesses without products (aka distributors). Trading companies rely on skill and opportunity, with barely any entry barrier. As distributors rely on manufacturers, they don’t control their revenue.
  • Low revenue/cash flow. Low-cashflow companies will find a lot of friction in selling. Without economic support, any minor obstacle can put the company out of business overnight.
  • Low trading volume. Even the best business team loses money without public interest. Not only it shows low demand, but it creates price volatility.
  • Second-options. In a winner-takes-all market, the top 3 companies will get almost all the customers (unless there’s disruption). If you worry that other companies may outperform yours, then why not invest in the better ones instead?

With a bit of clarity, you start the research process.

When looking for new companies, explore as many (authoritative) stock websites as possible, such as BloombergFidelity, or MorningStar. When investing in known companies, you’d check newspapers (such as The Wall Street Journal) and trading platforms (e.g., TD Ameritrade). You start with lots of sources and narrow down as you learn more.

Profitability Analysis

Without performance history, it doesn’t matter how brilliant the business plan is. Let the market decide what the company is worth. If it shows the results you’re looking for, it might be worth investing:

  • What’s the sales performance in the last 24 months?
  • What’s the trading volume in the last 24 hours?
  • What’s the all-time high/low and why it happened?

Whatever the business plan could be, you want to make sure this plan is making them profits first.

An advantage of investing in public companies is transparency. Every one to three months, these businesses update the SEC with a financial statement (e.g., Apple’s 10-K Form). The most relevant metrics include:

  • Liquidity/cash generated
  • Net profit/income
  • Gross margin
  • Cost of ales
  • Debts

When buying stock from large companies, profitability is already a fact. Instead, you’ll use those statements to compare and see where it’s heading in the future.

Assuming there’s a growing trend, that’s when you want to look for a sustainable business plan.

Business Plan

For a startup, the business plan proves to investors that there’s a business opportunity, along with a risk management strategy. For an established company, a proven plan brings clarity to the vision. It shows what’s worked over the years and how to improve it.

Mind that the markets change all the time. What works today may not work tomorrow. It’s not about having a good static plan, but whether the plan applies to the present or not.

What happens when you invest in a profitable, growing company? Its long-term valuation increases, regardless of the economic swings.


There’s not much closing going on when investing in public companies. You’re buying an investment product along with countless other investors, which gives you no privilege other than capital gains/dividends.

You get whatever the market offer is. You find a trading platform that lists this company, buy a stock, and you suddenly become an investor (shareholder).

Performance Tracking

When investing in public companies, you have to consider trading along with the fundamentals. The company valuation becomes reliant on the economy and what others are willing to pay. So while the company might be achieving its goals, that doesn’t mean its price will reflect that.

Because of this uncertainty, the perfect investment doesn’t exist. Instead of doing the same, it’s about updating your strategy as new information comes out. Just because a company is guaranteed to grow in a few years, that doesn’t mean it’s the right time to enter.

Thankfully, tracking public companies is easy because of their transparency.

How To Invest In Small Businesses

By small business, we refer to any company where you can invest enough to be considered a partner (if not buying the business altogether).

While owning a business involves responsibility, it means that the right investor has more control over the returns. Unlike entrepreneurs, you don’t need to risk everything on a new business. You find a company that’s already successful and invest in it.

Of course, scaling a small business isn’t that simple. Small companies don’t have as much cash flow for innovation, which is essential for growth. You need to adapt while keeping the same method that’s currently working, otherwise, you may lose all the revenue.

This doesn’t make it better or worse than entrepreneurship or traditional investing, however. It’s a different style that works for the right investor.

Market Research

Almost everybody who starts a business would like someone else to fund it. As an investor, how are you supposed to find about these small companies? Even if you find them, is it a good idea to invest in a brand-new business?

The more options you have, the more clarity you’ll get on what makes a promising business:

  • Join networking events to meet potential entrepreneurs
  • Visit business accelerators/incubators. Future business owners meet in these places when looking for funding. You can either find one in your city or look them up online
  • Find out where entrepreneurs hang out online (LinkedIn). You can each to interesting people by commenting on their posts, they have an informal call as they show more interest.
  • Explore projects on crowdfunding sites. There are thousands of ideas looking for funding on KickstarterStartEngine, and SeedInvest. If the team has a website, it’s easier to research and contact them.

It’s easy to get excited with all the business ideas you’ll see, which makes it hard to choose. When it comes to research, good is the enemy of great. Set high standards from the beginning, so you have enough margin for the uncertainties:

  • Startups that are already making money (from customers)
  • Ideas you understand (the simpler, the more marketable)
  • Preference for the teams that run successful businesses already
  • Companies with a clear roadmap defined
  • Preference for teams that made interviews, as it helps with in-depth research

Now you’re ready to explore for businesses.

Profitability Analysis

Before you contact anyone or spend hours validating ideas, you make sure the business is making money already. A business without a client is just a hobby, no matter how “professional” it looks.

The earlier you check for profits, the more time you’ll save for worthwhile companies. Ideally:

  1. They are getting sales with a product or preorders with an idea. Preferably, the product is essential and easy to understand
  2. The business already has enough money to sustain itself, either from revenue or other investors
  3. The right team is behind the project, someone with proven records of success. There should be some interviews explaining the product/vision in detail

When meeting these conditions, you’re preventing the three biggest causes of failure: no demand, low funding, and wrong team.

If it looks good after a quick check, it’s worth talking to the founders for more specific questions:

  • How many customers are you getting every month? How many of them are repeated buyers?
  • How long has it been since you started until you got your first customer?
  • What competitors are making great returns with similar products? (this is a sign of demand)
  • What’s the margin between what the product costs and what people are paying for it? (not the theoretical target price)
  • When creating new product versions, how can you prove that people are asking for these improvements? Have you run surveys, asked in comments, read critical product reviews?

After you validate the idea, you discuss the investment terms:

  • Do you have any requirements to invest in your business? What about withdrawals?
  • When investing X amount, do I get enough decision power to influence the business as an insider?
  • How exactly will you use this capital?

Business Plan

That’s when the entrepreneur may show you the business plan, the process that turns your money into profits for everyone. Why should you trust it? Because in the previous step, you proved that they’re making money.

Many think of business plans as a way to explain how to make money. But rather than How, it explains Why it works. Investors don’t look at plans (and they shouldn’t) until there are results.

Since you start a business until you get customers, your plan will likely change. Hence why profit analysis comes first.

In specific, you’ll check the business plan to see if the data matches your research and interview. Each section comes with supporting sources/documents, being the most important:

  1. The Market/Competitive Analysis
  2. Financial Statements (income statement, cash-flow statement, and balance sheet)
  3. The Executive summary

Now, this doesn’t mean they’ll use your money as planned. To better know what to expect, look at how they’ve managed money so far.

Is it a lean company? Or do they spend money on nonessentials, such as branded mugs, t-shirts, business cards? You can easily find out by checking their website and media feed.


Just because a company is making money, that doesn’t mean it will make you money. Investing in a promising startup may be profitable, but the risk may cost to lose it all. Investing in large companies may feel stable, but the upside is more limited.

Still, you can negotiate investment terms when talking to the right people (CEO, founders). If they already have other investors, that doesn’t mean you have to take the same offer. Everyone likes to get funding, so there must be something negotiable for both to win:

  • If the company is high-risk, can you negotiate higher dividends?
  • If you keep your investment for a minimum of X months, could you qualify for better terms?
  • If you plan to keep reinvesting, that loyalty could get you a better deal. Can you get a discount by signing a long-term contract?
  • Can you get a better offer if you close the deal quickly (before 14–30 days)?
  • What can you negotiate besides money? You may want to control/help the company as part of the team, which they may or may not want.

Yet, all this talk is for nothing if you don’t get these terms on paper. When closing, make sure that everything explained appears on the agreement. Check the terms to get your expectations right, before spending anything.

Performance Tracking

Signing a good deal may feel like a win. Still, there are no guarantees in the world of business. Because the company can’t control all the variables, you have to follow up on your investment.

After signing the contract, you want to give it time and avoid prejudices. Months later, you should regularly check that your investment is heading in the right direction. Unless it all goes as planned, you’ll need to adjust your strategy.

Start by asking the team about the situation. Why is the business making less revenue than expected? If you have solutions, they may be willing to take your advice.

When tracking performance, it’s important not to set fixed expectations. You may have spent weeks to find this winning company. But if numbers go south, the opportunity may no longer exist.

While it’s hard to deal with the sunk cost fallacy, regular tracking will save your investment.

How To Invest In Your Business

Out of all the investments you could make, none of them will be as profitable as your business. Because when you take control, you’re facing 100% of the risk, which comes with the greatest rewards.

Everybody talks about making money, but what happens when you lose your investment? As the business owner, at least you control what happens to you. You can prevent or adapt to the conditions, so next time you profit instead.

This doesn’t mean entrepreneurship is for everybody. You’ll need to ask yourself whether it’s worth risking your time and money, whether it works or not.

Market Research

Most businesses fail because of a “lack of market.” Yet, it’s not as simple as finding demand:

  • The customer has to be willing to spend X money to solve the problem
  • You need to find a way to profit while selling the best product, without assuming that people will buy into it
  • You have launched your product fast, as the market need decays over time

Now, how do you know your business is worth investing in? Look no further than the CENTS rule:

  • CONTROL: You manage your business, not a middle man, not an e-com platform.
  • ENTRY: Your business opportunity requires high money, time, and skill. Otherwise, anyone would do it and saturate the market
  • NEED: You sell a must-have, essential product for your target customer (not to confuse with demand)
  • TIME: Your business can run on its own by delegating, outsourcing, or automating. You don’t rely on direct hard work to generate revenue
  • SCALE: Your product can potentially reach lots of people (e.g., Internet business VS local restaurant)

Note: It’s okay that your model lacks one of these conditions. It can still succeed although it may be less profitable or take longer.

Profitability Analysis

Once you have a proven product idea, you see if it’s worth selling it. You might aim for numbers such as +35% profit margins or +150% ROI. Your product might reach those metrics, but does that mean it will sell?

There are three ways to increase customer revenue:

a. Get more buyers

b. Get them to buy again

c. Make them pay more

When analyzing profitability, look beyond the first sale. Imagine you have a lead generation system where past buyers keep buying your products. What’s the return on investment?

As long as they stay on your list, unlimited.

For example, you spend $20 to profit $10 from a product. Let’s say the average person stays in your customer base for 6 months and spends around $100. So for every $1 spent, you make $5 back after 6 months (AKA LTV, lifetime-value).

For the analysis, consider both the gross margin and LTV.

Business Plan

Since entrepreneurs are optimistic by nature, a business plan will bring more clarity. You analyze your business in detail to find out if it’s worth investing your money. Ideally, you’ll have proof of demand by selling an MVP.

Unless you’re looking for funding, the business plan should focus on risk management and opportunity:

  • Is it profitable with the most conservative metrics?
  • What’s the emergency plan (e.g., the business needs money but isn’t generating enough revenue)?
  • Where does the invested money go exactly?
  • What are the steps to increase the market reach?
  • What data verifies the market need (competitive analysis)?

Once redacted, see how this plan compares with your initial impression of the business. Is it worth it? Or is there a better business opportunity somewhere else?


Assuming you get started, it’s time for the actual investment. You buy the tools, negotiate with the product manufacturer, spend on marketing. You launch your first product as soon as possible.

Negotiation/closing in entrepreneurship is simpler than in traditional investing. You buy whatever you need to start the business and get to work. Only the production may involve negotiation/formal agreements.

Performance Tracking

Even when your goal is passive income, businesses need to adapt to stay profitable. Because you have full control, you should update your strategy as the market changes. Otherwise, your products may slowly lose their revenue.

If numbers look good, you might want to reinvest and scale. If it sells less than expected, you can work on long-term strategies (branding, customer lists…). If you change your mind and would rather run another business, the best time to exit is when it’s profitable.

After tracking enough customers, you’ll know exactly how much they spend, how long they keep buying, and why.

Investor’s Next Steps

If you should only invest in what you know, there’s no better way to do it than thinking like a business owner. Especially when you own the business, you can better control your return on investment. Other than profits, smart investors consider risk management, control, and time.

Whether you want to invest in your business or someone else’s, it all starts with market awareness. Both entrepreneurship and investing have their risks. So which one will it be?


Q: How much should I involve in the business?

Both passive and active investing work when you have the right skills. If you’re good at recognizing great companies and managing risk, all you need is a stock (or whatever security types you choose). If you’re better at running businesses, you should choose one and go all in.

Not everyone has the analytical skills to build a winning portfolio. So while passive income sounds attractive, you have the highest chances of success when you have more control over the business. Either being the entrepreneur or participating on the team.

Risk-reward can be rigged, however. No matter how high the risk is, the right team can minimize it by predicting and preventing problems. And you get the best rewards as the business owner.

Don’t be fooled: both passive and active investing requires work. Passive is easy to maintain, but it may take years to develop a winning analysis strategy. Owning a business sounds like constant work, but once the right team is there, you don’t need many hours to manage it optimally.

Q: Should I invest in multiple businesses?

As an investor, you may see diversification as a way to manage risk. Yet, it can set you for failure when done the wrong way. Investing in the wrong companies will cost you money, whether it’s one or many.

The answer depends on how much you involve. If you’re a shareholder or silent partner, it makes sense to invest in many, because there’s less control.

If you invest AND belong to a business team, you narrow down your investments. You would manage the main business while joining advisory boards for other companies. And if you’re the entrepreneur (100% control over the business), all your focus should go to your only business.

At least, until you scale and automate it.

Regardless of your control, it’s important that diversification doesn’t get in the way of market research. It shouldn’t lower your standards: better have fewer super-businesses than dozens of losers.

Q: What’s the best business to invest in with X dollars?

There’s no right answer to this question unless we address the basics. How much money are you looking to invest? What are your goals, and what level of risk can you manage?

Assuming you want fast, high ROI, the strategy is to balance risk and reward. You take more risk when you have less money, either by investing in new businesses or starting your own. As your portfolio grows, you can choose to lower the risk or keep it the same.

Risk isn’t something to take lightly. As it takes twice the money to recover from a loss, and while you do, you lose the opportunity to invest in better businesses. If that sounds too worrying for you, it might be time to look for a better business to invest in.

Share it
Notify of

Inline Feedbacks
View all comments