Are you making a pitch soon? Or are you looking to make an investment soon? As a business owner, you will need to show investors how they will make money when you make your pitch. On the investor’s side, you need to understand how they will make money.
Most consider dividing the profit share equally but this method is not always easy. There are investments that call for other methods of returns. For example, payments for government bonds depends on the interest rates when you bought them.
As an investor, you normally make money through the following methods:
1. Interest payment
Interest payments are the most common method of paying investors. They can be paid in the form of dividends or bonds.
a) Dividends Interest Payments
Dividends are a distribution of profits or losses among a company’s shareholders. However, companies usually pay a portion of the profits and re-invest the other profits. Re-investment will help your business and future profits to grow.
You should also note there is no legal provision that forces companies to pay you dividends. The companies will decrease the dividends when the profits decrease and increase the dividends when the profits increase.
b) Interest payments on bonds
Bonds are shares the government or other institutions sell and repurchase at a future date with an agreed interest. Thus even if the government experiences an economic boom, your bonds will not increase but will be repurchased at the agreed interest rate.
2. Sell your shares
An investor can also make money by selling their shares. You can buy back the shares from the investor. Alternatively, or he or she could sell to another investor and earn the income. The investor could earn a profit from the sale if he or she sells it for more than they invested.
3. Another company buys the company
Your company may choose to sell out to another company. The investors will share in the company’s value. Everyone will receive a share in the profits depending on their stake in the company.
4. The company goes public
When a company launches an Initial Public Offer (IPO), it is usually inviting the public to purchase and trade its stock. The stocks will be listed on major trade platforms like the New York Stock Exchange, or the London Stock Exchange among other stock exchange programs.
Apart from how they could get paid, investors will mainly look at the following factors before they decide to invest in your business.
- The value of your startup
Investors first assess the potential net worth of your company. You can help them to determine this if you provide your books of account. They will use these numbers to estimate your current and potential growth rate.
- The founders
The investors will also look at you, the founder(s). Visionary, skilled and diligent leaders have the potential to boost the companies growth and the investor’s profits. You may have heard of instances where the investors or board of directors fire a company’s founder as its CEO.
The investors will also consider the taxes they pay for acquisition and holding the investments. Taxes will depend on the type of company you run and the local tax laws.
There are cases were your creditors may turn into your shareholders. This happens when you and the creditor agree that you will pay back the loan in the form of equity in your company’s shares. You can also check out how to make money online