Most business people know that it can be a huge deal making a go of any business but putting money into a business investment opportunity that someone else brings to you is equally difficult. That’s why, when one of my good friend recently came to me with a proposal I didn’t just say yes because I liked him – it always pays to perform due diligence, even if its a trusted friend bringing you the deal. So, here’s what I did when Matt from BusinessPort Ltd approached me with a proposal he received from one of his clients
Basically, there are two main areas that you need to think about when a potential business investment opportunity comes your way. You need to look at it in two basic ways.
The first thing that you you need to do, is to try to work out what kind of return on any investment, you’re looking for. There are number ways to do this; the important thing is that you should pick a way to come up with a figure and you need to stick with it. You need to find out what kind of return you expect for your money and how soon.
It wouldn’t be a bad idea either to try to find out how long the business investment opportunity before you has been available, and how long there have been no takers.
Once you know how much of a return you expect on your investment, you have a basic idea about whether the business opportunity in question makes any sense for you. If it isn’t what you expect for your money, there’s no point in going on.
If the opportunity you have does seem to promise the kind of return that you expect, your next step would be to actually take a look at their financial plan to see if the they actually seem like competent people in how the plan for their business to be. It wouldn’t be a bad idea at this stage to bring in professional advisors.
With the help of your advisors, you should look at the financial plan and also the marketing plan that they seem to be working with. Even if everything else works out well, a poor or shortsighted marketing plan could make the difference between a profitable investment and one that bites the dust.
Any new business is absolutely going to take a bit of time to actually begin to return a profit. This could be anything from a few months to a few years. Before you take up a business investment opportunity, you do need to be comfortable with how long you are asked to wait. If your investment is not equity, if it is debt instead, you need to know if their debt to you is given precedence over equity when it comes to the company closing down one day.
And finally, even if all of the above seem to work out very well, you do need to find out how much risk is involved. Some businesses – restaurants for instance – exist in circumstances of heavy competition. They work on wafer thin margins and the possibility all the time that they might fall out of favor. You do need to assess if the risk involved is worth it.