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What to look for in a business investment

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Many people look to invest in a small business, for the potential profit that it can make them. However, investing in a small business is often more complicated then most people realize. Before you allow any money to change hands, you should take the time to learn all you can about the potential business investment and determine if it is the right investing opportunity for you. There are certain factors that you need to have a clear understanding of before you put in any money. Here is what to look for in a business investment-

  • Why do you want to invest?If you are investing in a business simply because you love what it makes or you like the people in the company, then that is not a sound basis for investing. You need to make your investing decisions, based on facts and try to leave out any emotion that can cloud good financial judgment.
  • Does the product or service have long term market potential? Savvy investors know that, for the best return they need to look, for businesses that have long term market potential. Even if the business is currently at the top of their market, you need to determine if they will be able to remain there. The harsh reality is that fads and "hot items" can bring in a short term return, but rarely last, for long term profit. If you are truly looking to invest you need to find a business that can maintain their market edge, for a long time to come.
  • Does the company have a long term marketing plan?You need to determine if the business you are considering investing in has a long term marketing plan. If they are able to position their product or service, to not only hold their market edge, but adapt to changing market conditions, they will be a far more profitable investment then other businesses. As a potential investor you will want to see that they have a written market plan that is viable and realistic and will capitalize on the investment you will make with them.
  • Is the management skilled at running this type of business? Savvy investing means understanding that you are not really investing in the products or services of any particular business, but rather the people behind the business. You want to make sure that all of the management (from the top down) are able experienced enough to grow and develop the company. In addition, you should never invest with a business that has a management with a dubious reputation. Placing your investment with this type of management can bring about serious consequences down the road.
  • Are you investing for the right reasons? You should never allow someone to talk you into investing or pressure you by saying that this investment "is the next hot thing". You want to take the time to do your research and then determine if this investment matches your financial goals and needs. Keep in mind that just because this investment works for someone close to you, it doesn't mean that it is the right investment, for your needs. Never let yourself be talked into an investment you are not 100% sure of.
  • Do you understand the investment? It may surprise you to learn that even some of the world's most experienced investors, have walked away because they didn't understand a particular investment. You should never allow your pride to keep you from making this decision. If you have read all of the literature, asked questions and done your research, and you still don't understand the business or the investment strategy, then don't be afraid to walk away and find a business investment that fits your needs.

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