Investing in Small and Local Businesses

Hey, fam! Welcome back to the Business series🎊

Throughout the month of March, we've been looking at businesses, specifically small and local businesses (or SLBs), and today we're going to dive into an aspect that I think is important especially for new businesses. Building capital.

images from usatoday and blog.wallstreetsurvivor .com

In today's world, virtually everyone has that business idea that they believe can change the world but only a few people actually have the ability to pursue such ideas. Of the many limiting factors, a common one is money. I am currently reading a book titled The Richest Man in Babylon and even though I've just started, I have already been inspired by some of the good advice that is being given in the book. One of such ideas is the power of investment. One misconception I used to believe is that investment requires a rigorous and complicated process but I now know investment can be as simple and easy as it needs to be. Investments are a good way to get funding for your business whether it's still an idea or it's already up and running.

As always I will give an example.

Let's say that I am an artist. I like to paint all sorts of stuff, landscape, still-life, you name it, I can paint it; but because I'm from a low-income family, I cannot afford to buy any fancy art materials to make more exquisite paintings like oil paintings. So right now I'm getting by just selling my drawings or watercolor paintings to earn a decent living but I want more. So I head over to my friend and tell him about my business plan. I want to get enough money to start an art shop. After talking, he is convinced and decides to help me by investing 10,000 naira in my art business in exchange for 5% of my profits. With this money, I am able to buy a better watercolor set, more paintbrushes, and paper, and even a real paint set (no shade to watercolors) to produce better paintings. Due to these upgrades, I am able to sell more paintings next month and make more money than I usually do. So let's say, normally I make 100,000 naira as profit but now I'm making 250,000 naira as profit because more people want my paintings. I am able to increase my prices because the quality of my paintings has increased.

At this point, my friend receives 5% of this new profit (12,500 naira) and I get to keep the rest for even newer upgrades. Maybe along the way, one of my other friends is inspired and says "let me invest in this your business" and they invest 5,000 naira in exchange for 2% of my profits. Next month, due to this extra investment and upgrades, I am able to bump up profits to 300,000. My first friend/investor gets 5% (15,000) and my second friend gets 2% (6,000).

I still have over 250,000 naira in profits which is more than last month. Also notice that my friend who invested 5,000 got only 2% of my profits.

If I went by the same rate as I did for my first friend, this second friend should have 2.5% of profits but in the real world, as the business grows, the amount you have to pay for the same amount of profits (AKA the price of the share) increases. This is the concept of buying shares and why share prices fluctuate. Because as the business grows, the net worth increases. It is like giving money to someone who needs it. If someone else had a museum of art and my first friend wanted to buy a share there, 10,000 naira could maybe get him 1% of the profits unlike my business, where he has 5% of my shares because I was just starting out (and frankly needed the money more)

Later on, if I allow more people to invest so that I can grow my business, my profits will continue to increase and my shares will become more expensive because my art shop is worth more. I will have more room to expand and grow until I am ready to put a pin in it. This might sound radical and unrealistic at first but the truth is, it is not as far-fetched as it sounds. Investing is not only for multi-million dollar organizations or old people in suits at the stock market. Anyone can invest or have investors. Most people who start businesses are usually either too scared to ask for money or too shy to convince people to invest but it doesn't have to be this way.

One lesson that I learned from a new acquaintance is that you have to believe your idea has value. You have to be confident so that you can boldly ask people to invest. Now this doesn't mean you won't get turned down, in fact most people will probably say no especially if they don't have money or don't understand your vision but part of owning or starting a small business is finding your resilience. When you start it won't be easy but it will always be worth it. I don't need to give examples but we have all heard at least one story of someone who was turned down by many at their beginning but still became successful. If I had another friend who turned me down when my first friend invested 10,000 and they came back next year with that same 10,000, they wouldn't get the same benefits as my first friend who invested when my art shop wasn't worth much. They might need to invest 50,000 to get the same 5% of profits and that's okay.

The world of investing (and generally the world) is definitely not as textbook as it sounds, there are many factors that could affect how people invest in your business.

Some examples,

• Vision: Do your visions match that of a potential investor? Most environmentalists will not invest in an oil or fossil fuel company because of philosophical differences. And that is okay. Stay true to your brand, whatever you want it to be. You can't satisfy everyone. You can make peripheral changes but if something is truly important to the essence of your brand or it is a personal value, don't give it up. Some things are worth more than money.

• Plan: Do you have a plan? Investing is still a risk because people are trusting you with their money? Are you able to come up with a business strategy or plan that will guarantee success? You want to put in the hard work first. People will not invest in a business that they think will not succeed. They want to make sure their money will be returned in profits.

Also, know that not everyone may be able to afford to invest in your business and not everyone may understand what you are doing but you should focus on finding the people who really care about your business and its growth. And remember that people can invest in different ways, some with their money, some with their time. If someone doesn't have money, that's totally fine, Ask if they can help you spread the word instead.

Even though this might sound like it's just for people with businesses, it's for everyone. Maybe you don't have a business but you know a friend who is starting one or already has one. Ask them if they need investments and how much of the profits they are willing to part with. Of course, as a business owner, only you can determine how much of your profits you want to give away to investors. If you want to use 80% of your profits for expansion, restocking, and salaries, and just 20% for shares, go for it. Set your limits. That is important. You don't want to give all your profits away to investors. And investors will respect that.

I know that starting a business can be hard especially in the Nigerian economy but I believe that with the right strategies, just enough courage and determination, anyone can get to anywhere they want to be. (Don't forget to pray too😉 no better investor than the baba God himself)

Surround yourself with the right people and see yourself rise to the top.

Hey you! Thank you for reading this week's post on supporting SLBs.

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Have an apetite for more tips on building a business or just getting your finances in check? Here are some resources that I'd recommend to get started.

Adeola Fayehun on Investing: https://www.youtube.com/watch?v=vjV_KgSKqKE

Adeola Fayehun, host of Keeping It Real with Adeola talks with multiple experts in her YouTube series, Money talk, on building wealth.

Ted-Ed: https://www.youtube.com/watch?v=p7HKvqRI_Bo

I love Ted-Ed. They really know how to break stuff down. Understand the history of investing in this 5 min YouTube video.

The Richest Man in Babylon:

Apparently, most Nigerian kids have read this book. (My life😔) Well I didn't read it in primary school so I'm just reading it for the first time and I'm enjoying it.

Have a wonderful rest of your week everyone.

Peace and love 💝

Stay blessed!

Peace and love💝