Whether you have decided on your own to start investing or have been asked to invest, it is a big financial step and deserves careful consideration. Investing your money into someone else’s business is always a risk, and it can yield a great reward or become a loss. Investing is not something you should jump headfirst into. Consider these tips before deciding to become an investor.
Business plans: Any business you are considering investing in should show you a well-written business plan. This plots out their plans for the future, indicates how they think their business will grow and what they plan to do when things don’t go as planned. The company’s target market should be identified, and the financials must be clearly laid out. If you have trouble understanding any part of the business plan, take it to a professional for advice.
Investment goals: Before investing, you need to define your investment goals. How much do you want to get back for your investment? How long do you want to wait for your investment to return? What kind of stake do you want in this business?
Risk: There is always a risk in investing. The pitch is meant to make it seem like a sure thing. Do research on similar businesses and the competition. Compare what the company is asking for to the amount of risk you’re taking and make an educated offer. This will help prepare you and protect you from investing too much or making a bad investment.
Paperwork: Once you define your goals and decide how much you’re willing to invest, get everything in writing, even if you are investing in a friend or family member’s business. This will ensure there are no misunderstandings and protect both parties. Having the proper paperwork will also help you stay organized and keep track of your investments.
Responsibility: Be sure to invest responsibly. Don’t invest more money than you can afford. Check all laws and tax laws surrounding your investment. Always air on the side of caution; if it sounds iffy or wrong, steer clear.