Let's imagine the following scenario:
A business owner needs funds to expand their business, or perhaps they want to sell the business entirely or in part, possibly to travel or explore new ventures. You have the necessary capital to invest—whether through full acquisition, partial ownership, or increasing the business’s capital. However, the challenge is that you don’t have sufficient experience in this particular business. So, what should you do?
In our series of articles titled "Before You Invest", we highlighted several steps and precautions that should be taken before investing, regardless of your experience in the business you're considering.
Your confidence in the transparency and technical expertise of the business managers, along with reviewing the business model, financial statements, and legal documents, can significantly mitigate the risks associated with a lack of experience in the field.
The business model, in particular, is a valuable tool for providing a general understanding of the business’s nature, how it generates income, and how it sustains itself.
Of course, assuming all other factors are equal, if you have the opportunity to invest in a business you have experience in versus one you don't, it’s naturally preferable to choose the business you’re more familiar with—unless you’re someone who enjoys experimentation and risk and have the financial means to do so.
Answering the Key Question: Should I Invest in a Business I Have No Experience In?
The general answer is yes, provided that you meet the requirements discussed in our previous articles. When you lack experience in the business, the elements we previously emphasized become even more critical, such as:
- The competence and transparency of the business managers.
- A clear business model.
- Accurate financial statements.
- The involvement of an independent, qualified Certified Public Accountant (CPA).
- Proper legal documentation for the business.
- Adequate guarantees for the partnership.
In general, investing by raising capital is preferable to acquiring a partial stake in the business. As for fully acquiring a business, it’s not advisable unless you have experience in that field, or unless certain other conditions are met—conditions that we will explore in upcoming articles where we discuss the various types of investment available in small and medium enterprises, as well as larger companies outside the realm of stock markets, bonds, and securities.
Finally, you should not rush into decisions. At the same time, don’t allow hesitation to cause you to miss out on viable opportunities. Consult with those more experienced, even if it costs you some money, as this expense could either save you from significant losses or help you achieve greater gains.