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Five ways to put money or time into a business
| Buy an existing business | Buy a franchise | Start your own | Stake in a private company | Commission partner role | |
|---|---|---|---|---|---|
| What you put in | Purchase price, plus working capital | Franchise fee, setup and ongoing fees | Startup costs and a lot of time | Money, for a share | Time and effort; no purchase |
| What you own | The business and its customers | Your outlet, under the brand's rules | Everything you build | A share, usually a minority | Nothing; you are paid commission |
| Who runs it | Usually you | You, following the system | You | The founders | The company; you sell for it |
| How you earn | Profits | Profits after royalties | Profits, once there are any | Dividends or a sale, if they come | Commission on results |
| Main risk | Overpaying or hidden problems | Fees outpacing profits | It never takes off | Losing the money; hard to sell | Unpaid time if nothing closes |
Buying an existing business
You buy something that already has customers, staff, suppliers and cash flow. The appeal is that you can see real numbers before you commit. The risk is that the numbers you see are not the whole story.
- Ask for several years of financial statements and tax returns, not just a summary.
- Find out why the owner is selling, and how much of the business depends on them personally.
- Check leases, contracts, debts and any disputes.
- Have an accountant review the financials and a lawyer review the purchase agreement.
Most small businesses you buy are jobs as well as investments: someone has to run them, and that is usually the buyer.
Buying a franchise
A franchise gives you a brand, a system and support in return for fees, usually an upfront franchise fee plus ongoing royalties and marketing contributions. Many places require the franchisor to give you a disclosure document before you sign or pay, which sets out the fees, the obligations and, in some cases, financial performance information. Read it carefully, talk to existing and former franchisees, and have a franchise lawyer review it. Our guide to buying a franchise covers the steps.
Starting your own business
Starting from scratch can cost the least money and the most time. You control everything, and nothing is guaranteed. Service businesses, skills-based work and sales roles are often the cheapest to start. See sports business ideas for options around sport specifically.
Taking a stake in a private company
Some people invest money in a friend's business, a local company or a startup in return for shares or a loan. This can be rewarding, but it has real drawbacks:
- It can be illiquid. There is often no easy way to sell your share, sometimes for many years.
- Minority owners have limited control. You may have little say over how the money is used.
- Securities rules apply. Selling shares to investors is regulated in most countries. Legitimate offers come with proper documents. Be wary of anyone who skips them.
- You can lose all of it. Many small companies fail.
If you are considering this, speak to a licensed financial adviser and a lawyer, and only invest money you can afford to lose.
A note on "passive income"
Many searches for businesses to invest in add "for passive income". Be careful with that idea. Most small businesses are not passive: they need an owner or manager, and the ones that look hands-off usually pay someone else to do the work. Hands-off investing in a private business is possible, but it carries the risks above and less control. Any offer promising easy passive income from a business deserves extra scrutiny.
The time-not-money option: a commission partner role
Not everyone looking for businesses to invest in has a large amount of capital, or wants to risk it. Another route is to put in time and relationships instead of money: sell another company's product and earn commission on results.
Play 2 Earn Sports is piloting a Territory Partner program of this kind. Partners bring sports clubs, leagues and academies onto Play 2 Earn Sports and earn a share of the platform fee each time one of those clubs' players registers and pays, every season they come back. Under the proposed pilot terms:
- There is a one-time territory fee for an exclusive area (about CAD 5,000 in Ontario).
- Partners are independent and paid commission only. There is no salary.
- It is active sales work, not passive income.
To be clear, you don't buy shares or a business. You pay a one-time fee for an exclusive territory, and in Ontario that makes it a small franchise under the Arthur Wishart Act, with no disclosure document needed at $15,000 or less. We don't sell territories where a disclosure document or registration would be required, including British Columbia, Saskatchewan and several US states. There you can join as a Sports Ambassador instead, which has no fee. The terms are proposed and can change before you sign, and the signed agreement is what applies. Whether any arrangement is regulated depends on its actual terms and the law where it is offered; we are having the program reviewed by counsel and make no claim that it is exempt from any rules.
How to compare any business investment
- Write down everything you would pay, now and later.
- Ask what you own if you leave or the business closes.
- Ask whether any earnings figures are backed by documented results.
- Work out how many hours a week it really needs from you.
- Get independent professional advice before you sign or pay.
Questions
What is the best business to invest in?
There is no single answer. It depends on how much money you can risk, how much time you have, what you know, and how much control you want. Buying an established business suits people with capital and management experience. A franchise suits people who want a proven system and can pay its fees. A commission role suits people with relationships and time but little capital.
Do the rules differ from country to country?
Yes. Many countries and regions have franchise disclosure laws, and selling shares in a private company is regulated almost everywhere, but the details differ. Check the rules in your own country, state or province, and get local professional advice before you invest.
Is the Territory Partner pilot an investment?
You pay a one-time territory fee (about CAD 5,000 in Ontario), then the work is commission-only sales; no earnings are promised. Sports Ambassadors, where territories aren't sold, pay nothing.
Can a business give me passive income?
Some investments can be fairly hands-off, but most small businesses need active work from someone. Treat promises of easy passive income with caution.