Investing money on a business requires a great risk that should not be taken for granted. A decision to invest must be thought over well and hard since it can lose or grow your money. The sad thing is that you’re never quite sure whether it does the former or the latter. Although the world of business and investments is utterly unpredictable, you can always make the right decision when you know how to assess the business you’re investing into and what questions to ask yourself before entrusting your money.
- How does the business make money?
Of course, as an investor, you should be able to know what you are getting into – that is, what you are actually investing on. Before giving up your money to a certain company, know how it earns its money. Although it is quite an obvious thing to do, some companies do not just make the most of their income through their products. For example, General Motors hardly even make money on their vehicles but on the loans it gets from its consumers in its financing arm. Knowing this, it will at least give you an idea on what risks and potential profits it will give the company.
- How is the competition going?
Before investing on a company, you also have to know how it’s doing in its market and how its competitors are doing relative to it, as well. Start your analysis with the sales figures of these similar companies. Pay close attention the strength of their sales and if they are better off than their competitors.
- How will the economy affect things?
You cannot just depend on the company you are investing in to find out whether you are at an advantage with your investments. Consider whether the company’s performance depends heavily on the state of the economy. You should also pay attention to the latest trends in interest rates – they can affect many industries dramatically.
- What threatens to hurt, or even kill, this company?
You might be investing on a company that could easily be shut down because of potential threats looming around it. For example, it could only be catering to just one audience – that would be riskier to invest on, since it might fall the moment that specific audience is lost.
- Who runs the show?
Assessing the team that runs the company would be an effective move you should take before investing on it. Notice how the management runs it – if they stick to their core strategies and are consistent of their message. If they do otherwise, and often blames outside forces for their poor performance, you better invest on something else.
It’s always better to be safe than sorry. Your hard-earned money deserves to be invested to the safe and reliable company. It’s only up to you to find the right companies.