Wednesday, July 6, 2022

5 Things You Should Do Before You Invest in a Small Business

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A lot of people believe that in order to properly invest, all you have to do is have enough investment money on your account, yet, things are never as simple as that. For instance, investing in stocks, directly investing in small businesses or buying commodities like gold or diamonds are completely dissimilar experiences that you have to be ready for.

Moreover, with so many schemes out there, you need to learn how to read signs of a potentially dangerous investment. On top of it all, you also need to develop a mechanism that will allow you to recognize a potentially lucrative investment. With that in mind, here are five things you should do before you decide to invest. For a small business owner, this can also come in handy if you aim to diversify your sources of income or make your business more appealing for potential investors.

1. Performance of the company

While this should go without saying, the thing is that a lot of people forget to consider this factor. You see, the stability and reliability of your investment greatly depend on your ability to make money and secure your funds. Sure, you never know what comes ahead but you can rest assured that the company you intend to invest in, already encountered some turmoil in the past. If they still show signs of financial health, this means that they’ve managed to successfully overcome this problem, which is the kind of performance that you want to see from people you’re entrusting your money with. One more thing you need to examine is their balance sheet, due to the fact that a well-stocked emergency fund serves at yet another assurance.

2. Leadership

Another issue worth tracking is one of leadership. Same as financial performance, this allows you to get to know people who you’re entrusting your assets with. First of all, you need to look at their official statements, bios and profiles – the things that they want you to see. Here, you’ll have the experience similar to that of reading one’s manifesto.

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On the other hand, you also want to further inquire into their personal brand. For starters, you need to check their work portfolio, in order to see what kind of impact they had on companies that they previously ran/were employed in. At the very end, checking their personal social media profiles may be a tad unorthodox, yet, it is neither illegal nor unethical to do so. In this way, you can check whether their personal values align with their professional stances. Even though this doesn’t have to be as important, consistency is always a good and reliable trait.

From the other side of the spectrum, it would be fairly easy for a small business owner to learn a thing or two about personal branding, thus making their business seem as a safer investment.

3. Protecting yourself from scams

The next thing you need to understand is the fact that every industry that involves a huge amount of money tends to attract fraudsters, scammers and con artists. This is why a lot of people regret making an investment that they were so enthusiastic about in the past. Ideally, you would invest a fair amount of research into this topic, nonetheless, this may require you to acquire some industry-specific knowledge. For instance, if you were to invest in diamonds you would be wise to look for a GIA certificate, while in other industries, different rules apply. Needless to say, these retailers are carefully vetted by a professional organization and are, therefore, much more trustworthy than their competitors who lack this credential.

4. Recognizing scams

Previously, we talked about doing some research and protecting your company, however, the first step of avoiding a trap lies in knowing there is a trap, in the first place. For this to work, you need to get familiar with some of the most common types of investment scams. At the top of the list, there are pyramid schemes, Ponzi schemes, high-return-risk-free investments and promissory notes. Other things to look out for are investment cold calls, share promotions and investment seminars. Most commonly, these are the methods used by these con artists to push through their agenda. As a leader of a small company, you’ll be presented with such offers on a daily basis. This should be yet another incentive to take a closer look at this particular topic.

5. Industry- and market-specific risk factors

The biggest problem with estimating various risk factors lies in the fact that it’s nearly impossible to predict them with 100 percent certainty. After all, if a plan was destined to fail, why would anyone even try wasting their time and money, in the first place. On the other hand, there are some risk factors that can be spotted from a mile away. For instance, a company trying to introduce something new to the market is at a greater risk of failure but also stands to face much greater gains. Aside from this, there are perhaps some indicators that a company may be in need for financing in the nearest future. From a standpoint of an entrepreneur, you should be fully aware of the hazards of the industry and learn how to mitigate these risk factors.

In conclusion

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The last thing you need to understand is the fact that even making all of these considerations in time doesn’t make your investment 100 percent reliable. Still, it does ensure that you have much greater odds at making an investment that will yield positive returns in time. Keep in mind, nevertheless, that you might have to wait a while for some of these indicators, which is why you should never lower your guard.

Author Bio:
Lucas Parker is a business consultant with a passion for writing. Doing his research, exploring and writing are his favorite things to do. He works as a consultant for the Australian diamond portfolio in Sydney. Besides that, he loves playing his guitar, hiking and traveling.

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