Financial constraint is one of the primary reasons small businesses fail. According to Fundera, 50% of businesses fail by their fifth year, while only 30% survive past their tenth year. Having a reliable source of finances is crucial not only to the long-term success of a business but to its growth as well.
Investment is one of the ways entrepreneurs can finance their businesses and position themselves for growth. While many small business owners shun the thought of getting investors on board (especially since it's more long-term-oriented than traditional financing and involves losing some control), the benefits far outweigh their reservations.
Are you considering funding your business through external investments? If you're unsure how the move can benefit you, here are a few ways it can help your business grow.
Role of Investment in Small Business Growth
- Overcome financial challenges
- Access investor expertise and mentorship
- Expand the market
- Hire key professionals
- Build your network
- Boost brand reputation
- Enjoy repayment flexibility
- Improve stakeholder confidence
Overcome Financial Challenges
One of the main benefits of having investors in your business is that you gain quick access to the funds you need to run smoothly. Whether it's working capital for day-to-day operations, money to purchase equipment or expand operations, investors provide the funds necessary to meet your business goals.
As a result, they cushion you from financial challenges that could have derailed the business and catalyse your growth.
Investor Expertise and Mentorship
Investors bring on board a wealth of experience, which can immensely benefit your business. In most cases, investors take an interest in businesses they're familiar with, allowing them to share their knowledge and advice on how to run the business more efficiently.
Thanks to their experience, they know what strategies work and some of the mistakes you need to avoid. And since they aim to protect and grow their investment, you can count on them to guide you on the best strategies to adopt to avoid losing the investment.
Expand the Market
Working with investors allows you to explore opportunities you would be limited to if you relied on other means of financing, such as a bank loan. For example, if you want to launch a new product line or venture into a new market, you might fail to get a bank willing to finance your idea. But you can find investors interested in funding you, which ensures you don't miss the opportunity.
Hire Key Professionals
While juggling all the tasks in your business might seem like it helps cut costs, the truth is that it limits your business growth. You can only do so much on your own. At some point, you require to hire people to help you run the business.
However, the cost of hiring and retaining staff or even outsourcing labour can strain the budget of a small business. And that's where investors save the day. They can provide the funds you need to hire the necessary help and scale your business.
Similarly, the investor's industry expertise can come in handy when hiring as they are likely to recommend you to some great talent they have worked with or provide tips on identifying and securing superior talent.
Build Your Network
Once investors pump their money into your business, they desire to see it grow and earn a good return. In pursuit of this goal, they're likely to connect you with some of their contacts that can help accelerate your business. These may include manufacturers, consultants, suppliers, vendors, and other service providers who might be interested in doing business with you.
Boost Brand Reputation
If the investor is a successful enterprise builder, your business can benefit immensely from their good reputation. People tend to associate or transact with businesses with a positive industry record, and a savvy investor with a proven record can help boost your brand reputation.
A positive brand reputation is instrumental in your business growth in many ways. Not only does it improve brand awareness and appeal, but it's likely to build brand loyalty and ultimately boost your conversions.
Besides, a positive brand reputation can help attract quality talent. According to statistics, 92% of people would change jobs if offered an opportunity in a company with an excellent corporate reputation. Apparently, superior talent is more productive up to eight times more.
Enjoy Repayment Flexibility
Unlike bank loans, investors do not impose tight repayment deadlines, which could strain you, especially if the business slows down. This is usually a welcome relief and gives you more peace of mind to focus on running your business.
Improve Stakeholder Confidence
Besides helping build brand reputation, investors can also boost stakeholder confidence, especially among employees, creditors, suppliers, and customers. They provide some form of financial security, which enhances stakeholder confidence in your business's future.
For instance, employees might become more engaged in their roles, which can translate to increased productivity. Creditors and suppliers may be willing to advance more credit at better terms, while customers are more likely to trust your business, leading to increased conversions, repeat business, and referrals.
Start Leveraging Investment to Grow Your Business
Sourcing for investors to invest in your small business is crucial to its growth. With financial constraints being the primary reason for business failure, having a reliable source of funds is vital, especially within the first ten years of a business.
Despite the fear among small business owners that working with investors might lead to loss of control, external investments are one of the sure ways of guaranteeing business continuity and growth. From helping you overcome financial challenges, access investor expertise, and mentorship, expand the market, hire key professionals, build your network, boost brand reputation, improve stakeholder confidence, and enjoy repayment flexibility, getting investors is a beneficial move.
If you have been thinking about financing your business through external investments, InvestaMatch is here to help actualise your plans.
Our platform eliminates barriers for NZ businesses to investment communities through smart investment opportunities. Signing up with us grants you access to insights and information from financial and investment experts. We also match you with the right investors, enabling your business to benefit from private funding and finance growth.
Contact us today with your investment questions, and let's guide you on the way forward.