Steven McMeechan is a strategic marketing and communications specialist at Capstone Financial Planning and he has over twenty years’ experience in senior marketing management roles across a range of industries including Information Technology and Financial Services. Below he delves into his top key power tips to knowing you’re investing right.
Investing in a business takes a lot of courage because you are never one hundred percent certain if the business will deliver a reasonable return on your investment. Life isn’t a Poker game – it’s never a smart move to blindly go ‘all-in’. So it makes good sense to do your homework and conduct your research before you invest in any business. It may take time, but it’s better to be on the safe side.
Wondering which factors you should consider? Here are some useful tips that’ll help you know if you’re investing in the right business.
Key Power Tips:
Before you invest in a business, make sure you know the numbers. Take a close look at its financial records to analyze its current performance and future potential. It’s not a game of chess where you can restart after losing – we’re talking about investing real money here. So, it’s better to make a well-grounded decision based on legitimate facts and figures. Ensure that the business you’re interested in has a financially healthy background.
Experience and Reputation in the Industry
After analyzing the internal factors, research information about the company’s reputation in the industry. If you want to know about its experience and reputation, you could reach out to its customers, business partners, and vendors. In other words, try to contact all the stakeholders to get a clearer picture.
If you’re aiming for solid returns over the longer term, consider investing in projects with a unique selling point that’s likely to persist over time. Look for features that distinguish the business from the mainstream market. Your investment will be worthwhile if the business has a competitive edge with its unique products and services.
Powerful Business Model
Powerful business models speak volumes of a company’s credibility. Learn about their mission, vision, and value proposition. Evaluate their target market, potential for growth, market share, competition, and key business partners. Ask them to provide in-depth information on how they plan to enhance their business. If they have a strong business model that indicates signs of progress, you can consider it a potential investment opportunity.
Size of the Market
Not all businesses promise quick returns, especially startups. If you’re in a hurry though, look into businesses operating in larger markets. Such markets give you the opportunity to tap into a larger target audience, and as such, larger sales volumes. Take your time to search for a business operating in a sizable market, as this will allow you to get an idea about the ROI you can expect, along with the timeframe for potential returns.
Devise an Exit Strategy
Things rarely turn out to be the way we plan – the same can be said for investing in a business. Just because you have invested in a business doesn’t mean that it will give you the desired returns. To be on the safe side, prepare a plan B. You should sign an agreement that if the business fails to provide you with your share, they should compensate for your loss by either selling their assets or arranging the money from another source.
Evaluate the Team Running the Show
Before you finalize where to invest, be sure to meet the team handling the major operations of the business. You wouldn’t want to hand over your money to a bunch of amateurs who aren’t capable of running and managing a company. Learn about whether individuals at key positions have the required skill set and competency to deliver results effectively. In addition, evaluate the company’s hiring process to ensure only talented and capable people are made a part of the team.
Always Conduct Your Research
“One man’s meat is another man’s poison.” Investments work in a somewhat similar way. Just because one of your friends made millions in profit from a particular company doesn’t mean you’ll get the same results. Markets change rapidly, influencing the performance of businesses over time. Instead of following others’ footsteps, conduct your research before putting your money in a business.
Keep these tips in mind when investing in a business to ensure you are putting your money in the right place. Remember, research and evaluation of every aspect of the prospective business is the key to a profitable investment.