Factors to consider before investing in a companyMyCFO Blog | MyCFO Blog

Factors to consider before investing in a company

Marketing Team

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Investing in any company is a risk. Having enough information about the company and its plans is essential as it enables you to make preliminary projections about future returns.

There are a couple of things that every business should consider before investing in another:
1. The CEO is considered as one of the most important parts of any business. When one intends to invest in a company they should consider having a word with their CEO. Do the investor and the investee have the same values and visions for the company? This cannot be predicted just by reading about the CEO and believing in all that’s written is true. A one on one interaction with the CEO enables the investor to understand if these synergies exist and if they share the same vision for the company’s future and how to achieve it.

2. The importance of getting the opinion of an expert in the field you’re investing in cannot be understated. A large number of businesses and investments fail due to a lack business experience. A great marketer may not make the best investor, and vice versa. One should assess their level of expertise in the field they wish to invest in and seek expert help if they lack said expertise. The internet and many social media platforms also help give you all the information to help you make the right decisions about your investment.

3. Stakeholders are integral to the success or failure of every business. Before investing, it is important to analyse and understand what the prospective company’s customer’s think of it and assess the level of goodwill they have towards the company.
Customers could be of various kinds:

  • The loyal customers - They would recommend the company’s product and services to other people and bring growth to their favouring company.

  • The distracted customers - They would be loyal to the company’s product and services only till the time they don’t see a better offer coming their way. They are constantly wandering to find better opportunities and are a threat to a company as they can move to the competing party any time.

  • The detractors – Every company has its detractors and they must be wary of those that actively set out to criticise and bad mouth them.

4. Every company that plans to invest in another should know about the financial performance of that company. Going through the company budget, balance sheet, accounts receivable, cash flow and the profit and loss statements help the investor to have a clear picture as to what would they get out of this investment.

5. The amount to be invested should be decided upon after conducting a thorough market analysis and understanding the level of risk involved. Failures are part and parcel of every business; therefore, one should be prepared for the possibility of losses and diversify their investments so that they do not get caught out.

These are among the many factors one should always consider before investing in company.

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