Last time, I wrote about equity investing and how it works. I promised I would come back and share with you how to identify investments/businesses (more so start ups) to put your money in.
What are those things to look out for before you invest into a business?
When we talk about investment from a business point of view, we are talking the buying and selling of goods and services for a profit.There has to be some one selling a product or a service and people buying this product or service.
That transaction is what generates revenue from which stakeholders/investors get to be paid by the business. So before you invest your money anywhere ask to be shown the money. “How do we make the money?”, should be the question.
If they can’t explain how the money is made or you can’t understand their explanation of how the money is made then you’re better off not investing.These things of if you bring ABC amount of money every month we give you DEF amount of money should not cut, that’s how people get conned. Ask how the DEF amount of money gets generated. Until that’s clear don’t consider investing your money.
After understanding how the money will be made, get to know and understand the people behind the idea. Every idea is as good as the people behind it.Get the right idea and place the wrong people behind it and your doomed. So try to understand who the people behind the idea are.
What is their perspective of life? What are their dreams and goals? What’s their character? Do they have a track record of honesty, persistence, accountability and transparency? Whats their thought process? Are they the kinds that can easily get along with people or they’re the hard to deal with type?
This is very important because the success of any idea totally depends on those behind it, meaning those behind it should have the right persona to drive the business forward. You don’t want to give your money to someone for business and the next day see them driving a fleet of the latest cars because they’re the quick gratification type.
Then look at the industry in which the idea is. Is it a new industry?Is it an old and dying industry? Is the industry saturated with very many players it’s close to unprofitable? Is it a growing industry with lots of future potential?
The industry can help you predict the potential for growth for the business. Some of the industries/sectors to interest yourself in include; technology, health, processed and unprocessed food, low cost housing, water, affordable communication, renewable energy, affordable transportation.
Anything within those sectors is a cool investment for the future.
You can also find out which other people have invested in the project if any and how much they’ve invested.This will help you understand which other people you be investing with and how soon the venture may take off because it won’t take off until all the money needed to do so is raised.
Then last but not least, find out the controls and balances in place. Are you dealing with a legally operating venture because when things don’t go as planned the law will be your go to point of arbitration.
Does the business have any forms of structures that can reign in on any one who might have a lot of power over the venture posing risk to the investment in the event that they abuse this power.
Do they have a reporting system that enables you receive/access all the information you need about how the business is running? If 70% of these tick the box then it’s a safe bet, you can invest in it.
Jaluum Herberts Luwizza is a Speaker,Writer and Contributor with the Nile Post. He is also a Business Consultant at YOUNG TREP East Africa’s No.1 Business Management and Consultancy firm that helps people start and grow profitable businesses.
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