Many investors choose to invest in established businesses rather than startups, primarily because established businesses have more chance of securing an investment. With that said, established businesses aren’t always safe to invest in and there are many points one needs to consider before taking a leap of faith.
1. Do Your Research
The obvious points to consider when it comes to investing in someone else’s business is the research involved. It’s important you’re confident your investment is going to be safe, otherwise, you could lose your whole investment. Do credit checks on the directors and CEO’s of the company and consider their financial history. Pay attention to the business plan too. There’s so much you can do when it comes to research and the more you do, the more you will make your investment that little bit more secure.
2. Invest Only What You Can Afford to Lose
Even if you did the research side of things properly, there’s still no guarantee your investment is safe. Therefore, it’s important to only invest in what you can afford to lose, rather than set your heart and future on an investment working out. So many investments fail these days because of poor research or simply because the business hits a brick wall.
3. Create an Exit Strategy
When it comes to agreements and contracts with business owners, it’s important you try and implement an exit strategy so you can get your investment back, whether that’s all of it or some of it. Such strategies are wise to implement, so you have the option to withdraw if you don’t feel the industry is doing so well.
4. If It’s Too Good to Be True, It Probably Is
If you’re promised extortionate returns on your investment, the returns are probably too good to be true. There is that saying of “if it’s too good to be true, it probably is” and it has been a rule of thumb many investors have stuck to over the years. Don’t just dive straight into an investment because of the high returns promised, as your investment is instantly at risk.
5. Take a Business Administration Course
If you have the money to invest into a business, you’ll have the capital to invest in a business course to better your business knowledge. There are many online MBA programs available at Northeastern University that can offer you the chance to secure a masters in business administration online. This would be an excellent route to take if you’re serious about investing in multiple businesses in the future.
If you’re a keen investor looking to invest for the first time, the best tip you can take advantage of is to not rush into anything. Undertake detailed research from the bottom up of a business to see if you can find something that doesn’t add up. Remember, no investment is safe, so always ensure you have made efforts to research and that you can afford to lose the investment if the worst happens.
Kara Perez is the original founder of From Frugal To Free. She is a money expert, speaker and founder of Bravely Go, a feminist financial education company. Her work has been featured on NPR, Business Insider, Forbes, and Elite Daily.