Investing in businesses has become the order of the day in the business industry. For investors, it is a wise way to spend money; instead of squandering it or leaving it in the bank, they prefer to invest it in a business and receive interest alongside their capital in the long run. While for business owners, they would always need financial resources to continually run their business, if they don’t have the financial resources, they seek for people who are willing to give them financial aids by investing in their business, then, they would have to share whatever financial outcome they realize from the business with the investors.
Thus we have seen how business investments is rapid in the business world, however, for investors, there are some factors you need to consider and things you need to do before investing in any business. If you don’t carefully consider these factors, you may end up making a bad investment (i.e. investing in a business that does not have the potential of excelling and yielding returns), and loose your capital and promised interest. In this article we are going to discuss 7 things you need to do before investing in any business.
Learn about the market you want to invest in
As an investor, although you may not know everything about a business before you invest in it, but you still need to learn about some background information about the market. You need to learn about the market, what it offers, its target audience, the cash flow in the market, the risk associated with it, the timeframe before it starts yielding profits, etc. You need to learn about all these things, then you can decide if that is the kind of market you want to invest in or not.
Learn more about the business owner
Before investing in anyone’s business, learn more about the person; their strengths and weaknesses, their passion for the business, their leadership qualities, their personality and attitude, learn as much as you can about the person, then ask yourself if you want to go into business with that person? If you are comfortable with that person managing your funds to get the business going? Or if you are proud that the person is the face of the company you are involving yourself with.
Examine the business past results
Also, before investing in any business, find out and examine its past results. Have they been able to get a good number of customers, are their products or services meaningful to people, and do they receive enough income from selling their products or services. In this case, if their results in the past was poor, you would be skeptical about investing there, or you would decide to invest only a small amount first and see the outcome. However, if they have gotten excellent results in the past, you would certainly be motivated to invest a good amount of money so you can gain even more when profits start coming.
Engage in thorough investigation about the business and it’s products or services
Most time, if you are only seeking information about the business from the business owner or team members, they would likely feed you with positive information because they desperately need your assistance to get the business rolling again. So, even if the business past results were poor, they may tell you that it was excellent just so you can invest big in the business. Therefore, in order to thoroughly investigate about the business and it’s products or services, the right audience to get the truth from is the customers. Their response on how effective the products/services has been for them would help you determine if the business is worth investigating in or not. By the time you speak with 4 to 5 customers and most of them give you a particular reply, you would be able to decide for yourself.
Discuss with your lawyer
If you are the type of person that works with a lawyer, it is important you discuss the proposed business you want to invest in with them. With their knowledge of legal matters, they would be able to counsel you on if the business is appropriate to invest in, and they will work with you to ensure that the business owner gives you the appropriate and agreed percentage that should come to you. By so doing, your investment in any business is legalized and secured, so you don’t need to be afraid.
Consider the size of the market and the competitive advantage
The goal of all investors is to make reasonable profits from the business. Therefore, before investing in any business, consider the size of the market (is the target market large enough or limited to a few people. If it is a large market, there is hope that the business can make huge sales and you would make good profits, but if the market is small, the cash flow into the business would also be limited). Also, consider the competitive advantage. All businesses face competition from their rival business, everyone trying to up their game and attract the prospective customers for themselves. Therefore, if you want to invest in a business, make sure the competition is to the business advantage, and that is how you would be certain of the business success.
Devise an exit strategy
Finally, before investing in a business, be sure to devise an exit strategy, so that when the business is no longer doing well because of one factor or the other, you would not fall with it or loose all your means of getting income. While exploring the market before you start investing, look for loopholes and the possibility of the business shutting down, then seek for ideas and ways you can safeguard yourself if this eventually happens. By so doing, you would be equipped and ready to make your investments.
Those are the 7 things you need to do before investing in any business. If you follow them, you are likely to make good investments and safeguard yourself from any eventualities. I hope this article has been helpful to you. Thanks for reading!