Before you begin investing in a business, there are many factors to consider. Even if you see the promise and bright prospect, you need to think carefully before making that financial commitment. This means knowing what questions to ask when investing in a business, so you know what to expect and learn more about the company and the people behind it.
Read on as we list the top business questions to ask when investing.
1. Why is the Business Raising Capital?
This is one of the most important questions to ask before investing in a business. You should learn how the funds will be used and why additional funds are needed. The reasons behind this may be domestic or international growth or for repaying debt.
Before investing in a startup business, ensure the business already has a detailed plan for the funds they’re currently raising.
2. How Big are the Business’ Market Size and Competitors?
You need to understand the company’s market and its competitors to see if there are similar products and services available in the market, which may negatively affect the business’ growth. Sure, businesses would have industry competitors, but you should know that the business you plan to invest in has unique features that will give it better chances of success for you to gain a good return of investment.
3. Who Else is Investing in the Business?
If you’re a new investor and unfamiliar with the industry, you should ask this question to help you know about the quality of investors who plan to accept this offer. It’s best to see people who are well knowledgeable in the industry and are confident with the business’s future plans, seeing that it’s a great financial opportunity.
4. Are the Business’ Financial Projections Reasonable?
This question is for your due diligence, as you should be reviewing the business’ financial forecasts, ensuring that it matches their assumptions and previous results. That way, you know that they have reasonable growth projections.
Also, ask if the business is raising enough capital for the successful delivery of plans to prevent your investment from getting “marooned”. You’ll want to invest in a company that aims to raise funds enough for the next year or so.
5. What does the Leader’s Team Comprise of, and do They Have the Proper Experience?
It’s best to learn more about the founders and how they are involved in their business, as well as if they possess the proper knowledge and skills to manage it, along with the ups and downs of today’s economy. The answer to this will have you know more about how hands-on the founders will be or if they will depend on management teams when running daily operations.
You should also learn about the leadership team and how strong they are, which is crucial to the business’ success. You’ll want to invest in businesses that have leaders possessing the confidence and experience to identify opportunities for growth and make any tough calls when needed.
Hopefully, “investing in a business” questions helped you out! When you are considering investing in a new business, do ask these questions to help make an informed decision.