When deciding on a company to invest in, it can be a little bit of a risky and complicated process. It is not an easy job to do, especially with long term investments so there is a lot of work that should be done before hand in order to ensure the odds of success for the investment. Here are six things that every investor should do or know about before investing in a company:
- Meet the CEO
Not only just meet him or her, but talk to them. Get to know them a little bit. Many IPOs are sold without investors ever looking in to the CEO’s or even having a conversation with them. You should never invest in a private company without doing this first. There is no way for you to have confidence in the team if you don’t know who they are. Here are a few questions that you can ask the CEO so make sure that this company is right for you:
- What is your vision for this company?
- As CEO, what are your values?
- Are you a member of any reputable non profit organizations?
- What volunteer opportunities does your company offer>
- What is your plan of action for getting your vision accomplished?
- Where do you see the company in 5 years? 10 years? 20 years?
- What makes your company better than others?
- Get Advice from a Professional
Not just any professional, because chances are, you are a professional; get advice from someone who knows the industry in which you are planning to invest. Do your research and find someone you can trust, that has an unbiased opinion of the company and the organization. Finding a company to invest in requires a lot of research and finding things to do will not be hard so it would be beneficial to talk to someone who already has been through this stage.
- Obtain a Strategy
You will likely not be a very good investor if your money is only reaching out to a few companies. Eventually your goal should be to invest in upwards of seven to 10 investments. You’ll have to sit down and decide how much you want to give each company you are investing in. Make sure that your investments are diversified so that the risk factor runs lower.
- Understand All the Things that Facilitate Growth
Some companies will hit a stunt but this does not mean that it is over for them. As with our bodies, companies go through growth spurts and it would be beneficial for you to understand how and what makes a company grow. Logistically, you should view the financial records when you are looking for a company to invest in. Take a peek at the balance sheet and cash flow statements as well as any income statements.
- Get Legal Advice
You should already have a lawyer on retainer when you are looking to begin investing so talk with them about any legal documents that may be associated with any of the companies. Your lawyer should see any and all documents, just in case there is something you missed. And chances are, there will be.
Take a look at how your company’s value measures up to other company’s in the same field. This will be based on a few different factors including but limited to:
- growth rate
Think of the conversation as an interview. Go in skeptical, there’s nothing wrong with that. See how the CEO can convince you to invest in their company. Allow him or her to help you understand what the company is all about and see if they really believe in it themselves.
A ‘good’ company is not always the best investment. When a purchase price is extremely attractive, if might be worth your while to look a little deeper.