With a rapidly changing world and a volatile stock market, does it make sense to invest your savings in an SME business rather than in shares?

Investor SME enterprise

Over a number of years, with a solid foundation and the right conditions, it is possible to significantly increase the value of an SME company. From a long-term perspective, there is therefore a good opportunity for solid returns.

Equity investing has become the new "black", especially during the Covid-19 pandemic, where interest in stocks and bonds has been on the rise. The potential for good returns in both the short and long term is tempting, but there are no guarantees - as an investor, you have no ability to influence the stock market.

An alternative to investing in shares is investing in an SME business. An alternative that can grow your savings significantly while giving you much more control over the returns you achieve. In both the short and long term.

The value of the investment in an SME business can increase significantly

To be successful as an investor in a small business, there are obviously some prerequisites that need to be in place. Basically, investors must be able to understand and relate to the company's business foundation, and they must be able to spare a large amount of money for a number of years. Typically, you will need to invest between DKK 500,000 and DKK 5 million.

Becoming an investor/partner in a well-established and profitable company with a good track record in a market with potential for growth, it is possible to increase revenue significantly, thus increasing the value of the company upon exit in addition to the ongoing returns.

For example, if you buy into a company with an annual turnover of DKK 4 to 6 million, you could potentially double your investment, provided there is a solid business foundation and a market with potential. Depending on the conditions, this will often take a number of years, which is why you should be prepared for such an investment to be long-term, typically with a time horizon of 3 and 6 years.

The trend is positive and the future looks bright for Danish SME companies

For many years, the trend has been for the industry to outsource many of their subcontracting tasks to factories in Asia and Eastern Europe. The current situation with high freight rates, delivery reliability and the technological development where automation through robots means that Danish companies are competitive on price, has led to many customers slowly choosing to insource their production to subcontractors in Denmark.

This trend helps to strengthen the business foundation and prerequisites for Danish SME companies, their future development and potential.

Clarity on all details

Because you can't "just" withdraw your invested funds from a company, it's important to keep track of a number of issues related to the company and the investment itself. The preparation of a valuation is an essential point, as is clarifying how long your money should stay in the company as a minimum.

Ownership agreements and clauses are also an important area. Therefore, we always recommend that you involve your advisors (accountant, lawyer and bank) in the process, as we do not provide legal or financial advice.

However, feel free to contact us if you have any questions or want to hear about the options we can offer.