Why is Investing So Important?
Why is Investing So Important?
Posted on October 5, 2022 in Finance
For most people investing is a secret process, but one that they hear about all the time. In reality, it is not that hard to figure out, and there are a number of different ways that one can take advantage of it, be they business owners, capitalists looking to become angel investors, or even private individuals just looking to make a little extra money. Investing is the lifeblood of any company looking to expand; once you understand that, it is simple to understand how investing works and how to take the best possible advantage of it.
Basics of Investing
For those interested in investing, or at least curious about the process, you need to realize that the process is not that mysterious; it is just a way to raise funds for a business. At its most basic, investing represents someone taking an interest in a business, or group of businesses, and putting their wallet where their mouth is. This is more than opportunity, the more that they invest in the business, the more of a voice that they have in the business. For business owners, it represents additional capital to catch up on bills and possibly expand their businesses.
When a business owner first decides that they will be allowing investing in their company, they need to decide how much of the company ownership that investors will have access to as well as who will have the company’s share of the stock; once that is decided the company can then seek investors. It is not uncommon for the company to create a rotating authority in who controls the company’s stock, such as the chief executive owner or the actual owner of the business; this allows whoever is in control of the company to control its stock.
If the amount of stock controlled by the investors exceeds the amount controlled by the company then the investors can make the important decisions of the company; while the CEO and original owner may have a voice, they must answer to the investors. This can make for some interesting fights, especially if one of the investors has enough stock, either directly or through access to votes from others, to effectively run the company. While most companies try to avoid the investors having control, economic downturns or forced expansion can dictate otherwise.
What Does The Company Get
With that in mind, investing represents more than just control over the company. What makes investing so important is that it gives a company several opportunities. While there are other considerations, those are the most usual reasons to seek investors. By taking advantage of its investors, a business is better able to do business.
The company has money to catch up on any unpaid bills
Most businesses are run hand to mouth; they run with pretty small profit margins. This means that they often fall behind on their bills, be it utilities, rent, or paying their vendors. With a little capital from investors, they can pay off outstanding bills.
The company can expand, either offering new products or building new production centers
A lot of businesses would like to expand, but lack the capital to do so. In some cases, expanding is a matter of life or death for the business; they are locked in a death battle with another business and need to expand to at least keep up with their competition.
The company can research new products
A company needs to come up with new products to survive; few companies can provide the same products and remain viable. An investor that provides money, as well as technical knowledge, can help the company remain on the cutting edge.
The company can pay for marketing campaigns and other issues not directly tied to producing its products
Some companies can only pay for their bills and so are unable to pay for any real marketing campaign that would get the company ahead. With a little extra capital, they can create and administer a proper marketing campaign that helps them expand and advance.
Investors Make Business Run
In short, investing is important because it allows a business to do things that its normal profit would not allow it to do. It is best to look at investing as a way to provide a loan to the business; this is why they are given a dividend based on the value of their investment. While some companies pay off their investors over time, most decide to keep their investors and actually seek more investors.
Investing helps to keep capitalism going. We all need some help from time to time, and companies are no different in that regard. By using the money from investors to catch up and get ahead, investing allows businesses to do quite a bit that they would otherwise be unable to, making investors indispensable.