Susan Wells is a freelance blogger who contributes much of her work to Insurance Quotes, an online resource for insurance news and information. In her spare time, Susan enjoys doing yoga and visiting her family on the weekends. Please leave any questions or comments for her below
The Role of Real Investments and Insurance in New Small Businesses
When determining how to invest your money for future financial security or growth, there are primarily two ways to do it; real investments and investments in financial instruments. Real investments involve the purchase of property, such as land, real estate and property, plant and equipment. Investments in financial instruments involve placing your money in things like stocks, bonds, T-bills and the foreign exchange market.
Both real investments and financial instrument investments are used to increase the value of money to beat the effects of inflation over time, usually for retirement, inheritance or security purposes. However, there is no guarantee that an investment in anything will result in monetary gain. In fact, some investments are toxic. This means that their values are so low, investors ending up losing money.
Real investments are applicable to entrepreneurs and small businesses for two reasons; the purchase of property is necessary to do business, and entrepreneurs must find people who are willing to invest in their business model. For example, a small textile manufacturer must purchase a factory and the equipment used to weave fabric. Most entrepreneurs do not have enough money in their personal bank accounts to purchase such high-dollar items, so they must look to venture capital, crowd funding or small business loans to help them get their idea off the ground.
Investing in a startup or small business is seen as a high risk, so venture capital firms, crowd funding participants and loan companies are only interested in giving funds to startups that show potential. Independently, each source of funding also differs in what it expects back from funding a startup. Venture capital firms usually expect to own equity in the companies they invest in. Crowd funding participants sometimes expect to own equity, also, though many invest small amounts of money and expect nothing in return. Small business loan institutions expect business owners to pay off the value of a loan, plus interest, within a fixed term. These types of investments are only insured if the investor and business owner have a contractual agreement that involves a cross-collateral clause or allows the investor to regain their initial investment for any reason.
In terms of the business owner, the money they spend on property and goods for their business are what make the project possible. Some of these investments can be quite expensive, such as the heavy machinery used in manufacturing and construction. These investments must be insured to protect the business owner from damage or loss due to theft, natural disasters or other unforeseen accidents. If they don’t insure their property (or underinsure their property), they put themselves and their investors at risk for bankruptcy.
In terms of proper business insurance, there are numerous companies and plans to choose from, so it can be confusing to determine what type of insurance is ideal for your company. It is important to choose your insurance agent carefully. Businesses can only be well-insured when they work with an agent who understands the needs and vulnerabilities unique to a company. It may take you a while to find a good agent, but you will know when you find him or her. They will be very interested in a thorough analysis of your business before suggesting a plan, and they will want to review the plan with you in detail to help you understand what you are getting. Even once you have a good agent, stay informed about average business insurance rates to avoid overpayment.
If you are in the early stages of fundraising for your startup, it’s wise to start thinking about what kind of insurance your business will need and to begin doing research on different insurance providers and their available plans. For more tips on buying business insurance, take a look at this article on the U.S. Small Business Administration’s website.
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This entry was posted on Thursday, October 11th, 2012 at 10:54 am and is filed under Business Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.