One of the most common questions we receive during tax season is: “How or where can I invest my tax refund?”
Many individuals express interest in being part of a small business venture—but without the responsibility of becoming a full-time entrepreneur. Others are simply looking for an additional revenue stream to support their long-term financial goals.
At SMG Consulting Group, we encourage all clients to aim for a minimum of 3–5 income streams, especially when you consider that most high-net-worth individuals have at least seven. This is why we emphasize: you can participate in the small business market without carrying the weight of daily operations. You don’t need to be the CEO to profit from business ownership.
Some investors avoid traditional options like stocks, bonds, or mutual funds due to concerns about market volatility or Wall Street scandals. Others consider real estate but are cautious about the capital required for down payments and reserves.
We’re not discouraging investment in the stock market or real estate. Instead, we aim to introduce an alternative investment strategy—one that aligns with entrepreneurship but doesn't require full-time commitment: investing in small businesses.
With the job market increasingly unpredictable, many people are launching ventures out of necessity or ambition. However, these startups often face challenges securing funding due to limited access to capital or stringent bank lending standards. Small business investments ranging from $5,000 to $50,000 can play a pivotal role in helping these ventures grow—while also offering double-digit returns for the investor.
Here’s how to approach small business investing strategically:
1. Create a Tax-Saving Business Entity
Our top recommendation is to first establish your own business entity. This move allows you to strategically manage your investment—especially if you're still employed.
For example, if you plan to invest $10,000, deposit that amount into your business entity’s bank account. Then, have the entity invest in the small business. This structure may allow you to deduct business-related expenses like travel, meals, and communication, which can reduce your taxable income. Always consult with your tax advisor for specific guidance.
Alternatively, you can defer expenses by recording them in your business’s equity account—the amount your business owes you. So if you invest $10,000 and later spend another $5,000 on related expenses, your equity account would reflect a $15,000 balance, potentially allowing you to withdraw that amount without tax implications.
2. Develop an Advisory Board
Form a trusted group to support your investment decisions. Your board might include friends, family members, an attorney, an accountant, or even SMG Consulting Group. Inspired by the concept of Shark Tank, this internal team can help you vet opportunities and offer objective insights.
3. Perform Due Diligence
Once your advisory board is in place, thoroughly investigate any potential small business. Assess the business model, infrastructure, and leadership team to determine if it’s sustainable and capable of repaying your investment.
4. Make Sure You Have a Voice
The best investments often involve active participation. Before you invest, consider how you can support the business—such as serving on an advisory board, helping acquire customers, or making strategic introductions. Stay informed and involved. This level of engagement helps protect your investment and develops your entrepreneurial identity.
5. Manage Your Expectations
Not every investment will yield a tech-giant-level return. But you can still aim for returns that surpass traditional vehicles. For example, a $10,000 investment that returns $15,000 (principal + interest) results in a 50% ROI—far beyond most bank or market returns today.
6. Invest in the Management Team
The people behind the business matter. Ensure the leadership team is passionate, competent, and transparent with their goals. Once you invest, you're entering a potential long-term relationship—so trust and clarity are essential.
Final Thoughts
As with any investment, risks are involved and returns are not guaranteed. But by doing your homework, structuring your investment properly, and staying involved, you can create income streams with strong potential upside—all without the burden of full-time business ownership.
At SMG, we believe small business investing is one of the smartest ways to diversify your income and move closer to financial freedom—without having to build the business yourself.
Good luck with your small business investing journey!
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