When it comes to investing, there are many things to take into account.
Simply, you want to make sure that you are making a wise investment, and that the company you are investing in is going to be successful.
Of course, you'll never know for sure, but carrying out research using a combination of quantitative and qualitative criteria can help you determine pre-investment if this will be a good decision for you.
In this blog, we discuss 6 key factors to consider when investing in a company to determine if this will be a good decision for you.
Simply put, a management team should make sense for the business.
This includes taking a close look at the experience and expertise of the people running the show.
Are they qualified to make the decisions necessary for success? Do they have a good track record?
A good management team is firm on the company's values, mission, and goals, and their abilities should be in sync with these.
Furthermore, managers with complementary skill sets are more likely to succeed. They should have enough overlap to create alignment and make decisions quickly, but also enough orthogonality to allow for a variety of viewpoints and optimum performance.
Lastly, there should be a balance between growth and experience: when companies have a combination of both, they tend to outperform those that only have one or the other.
Over time, having fast learners with less experience (usually promoted from within) and more experienced senior managers (usually brought in externally at later stages) usually results in efficient performance and growth.
The first step in evaluating a possible business investment is to see whether the company is profitable and how it has performed recently.
Here, you should request financial reports that cover three years' budgets and tax returns, a balance sheet, current accounts receivables, cash flow projections, and profit and loss statements.
Then, examine these to get a sense of the company's current net worth, sales and cost trends, as well as where the company's strengths and drawbacks are.
Finally, pay attention to the firm's balance sheet, which includes a list of current assets, liabilities, and net worth.
When considering investing in a company, it is important to take a look at who their competitors are and how they are performing in comparison.
This will give you a good idea of the industry landscape and where the company stands in relation to its competitors.
It is also important to look at what their competitive advantage is and whether or not it is sustainable.
A company's competitive advantage is the thing that makes it better than its rivals, and it should be something that is difficult or impossible for others to copy.
A sustainable competitive advantage is one that will allow a company to maintain its position as the market leader even as new entrants come into the market.
Another key factor to consider when investing in a company is who their customers are and what needs they are trying to meet.
This information can give you insights into the size of the potential market, the company's customer base, and how easy it would be for new competitors to enter the market and steal market share.
It is also important to look at whether or not the company has a loyal customer base who will stick with them even if new competitors enter the market.
When investing in a company, it's a good idea to look at who their suppliers are and how dependent they are on them.
This information can give you insights into the company's bargaining power, as well as the potential for supplier disruptions that could impact the business.
It is also important to look at whether or not the company has long-term contracts in place with its suppliers that would protect it from sudden price hikes or other disruptions.
When considering investing in a company, it is important to take a look at the overall industry landscape.
This will give you a good idea of where the company stands in relation to its competitors, as well as the potential for growth in the industry.
It is also important to look at whether or not the industry is cyclical, meaning that it goes through periods of boom and bust. If so, you will need to take a close look at the company's financial situation to make sure that it is prepared for downturns.
Investing in a company can be a great way to generate income and grow your wealth.
However, it is important to carefully consider all of the factors listed above before making any decisions.
If you take the time to do your research and understand all of the risks involved, you can increase your chances of success.
Remember: investments come with risk, so always consult with a financial adviser before making any decisions.
For more information on investment decisions, or to discuss funding options, please get in touch today.
SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market, and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.
The Market We Serve
SME Capital provides SME funding for businesses which are integral to the UK economy. We support UK businesses able to demonstrate recurring revenues and a track record of profitability. They often have unique needs that fall between traditional lending routes and the automated response from online only business loan lenders. We cater to businesses with strong cash flows, assessing each business on its strengths, rather than focusing on the asset base.
Latest News & Insights