There are a number of important factors to consider before a business
investment, to protect your resources from the sometimes uncertain
elements of an investment environment.
Jumia Travel shares 5 things to consider before a business investment.
The Business
This is an obvious one. An investor needs to
understand the business in which he/she is investing. Like Peter Lynch’s
investment maxim says ‘Invest in what you know’. It will be difficult
to be cheated in an investment, if you understand the rubrics of that
business. Before investing in a business, study the business; the more
you understand the business, the more confident you’ll feel about the
investment. Additionally, talking to an expert - someone who knows the
industry that interests you - can also help.
The Growth
In addition to understanding the business, it’s important to understand
the growth of a business. Consider how the venture is growing – is its
growth organic or does it have more of a buying growth? Also, consider
how the company will grow. To help with this, an investor will need to
dig into the key financial statements of the venture like the balance
sheets, income statements and cash-flow statements.
The Exit Strategy
Understand and know the exit scenarios for the industry that will be
best for you. As a responsible investor, it’s best to always be prepared
and have an exit plan laid out either for when the venture reaches the
ideal scale intended or when the venture doesn’t seem to be yielding the
returns you expected. Either way, always have an exit strategy of some
kind for every business investment.
Legal Counsel
A good number of investors overlook this very important factor, and end
up running from pillar to post seeking legal counsel when things go
wrong. Be sure to seek legal counsel on all crucial steps of the
investment and be sure that every legal document associated with the
investment is shown to a trusted lawyer for feedback. Prevention will
always be better than cure, and in legal matters, ignorance or
oversights is not an excuse. So avoid the avoidable by seeking legal
counsel; you don't have to agree with all your lawyer’s points, but you
should at least understand them and make your decision based on that
understanding.
Your Comfort Zone on Risk Taking
All investments have some form of risk associated with it, so it’s
therefore important to understand the risks of a business investment and
first decide if the risks are what you can bear. If you can’t bear the
worst case scenario and have no plan B to help deal with the worst case
scenario, then it’s advisable to refrain from such investment. You must
always consider your propensity for risk before putting your resources
in a business investment.
Circumstances that Can Lead to Fraud
This is one of the most important factors on this list. There are a lot
of scam artists out there looking to lure potential investors into their
trap by making their ‘opportunity’ sound legitimate. But there is a
limit to how well they can do this, and if you’re careful and vigilant
enough you’ll be able to see through their facade. As a responsible
investor, ensure you do your research well beforehand, ask questions and
check out the answers with unbiased sources before you invest. Also,
never rush into an investment. In fact, any investment that puts
pressure on you or tries to rush you into it, is a fishy one. You should
tread carefully. Always take your time and talk to trusted family and
friends before investing. Never for any reason rush into an investment,
regardless of the pressure.
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