Investment opportunity in proven existing businessPosted by ICS Admin Under Investment On August 7, 2018
Every business organization has a history of how it progressed from a mere idea to a successful venture. Investment or funding is a major factor which decides the profitability of a venture. Most of the business owners would require a solid support from investors to fund their business. Once the business is established and start performing well in the market, plans to expand or diversify the business can be considered.
Why invest in established companies?
Investing in late-stage companies has less risk when compared to start-ups.
- Healthy profit margin & positive cash flow
- Well-known and familiar product in the market
- Proven Competitive edge for product/services
- Strong market presence and knowledge
- Faster return of investments
If you are planning to invest in a business the following factors may be considered before taking a decision.
Stable earnings/profit margin
Study the earning potential of the business venture by doing some background research. A stable earning potential will reduce the risk involved in an investment. Business forecasting is made easy when the business has an established & stable profit margin.
A clear & positive balance sheet
Take a look at the company’s balance sheet and financial documents to get a clear-cut idea of the business status. A precise & positive balance sheet will indicate a healthy business profile. If a good balance sheet is maintained the firm will have the ability to withstand market fluctuations. Seek help from a financial advisor if you need clarification on the relevant aspects.
Efficient business operations
A look at the company’s net income can give you an idea of the operational efficiency of the business. This can be used to compare the position of the firm with respect to other competitors. A yearly analysis of Return on Assets (ROA) can also be done to ensure the credibility of the business.
A strong top management
A capable & efficient management is a backbone of any business. The top management is responsible for finding new opportunities and making all major financial decisions. An ideal management team helps to motivate the employees and drive the business to success. The top managers provide insights about the long-term goals and strategies for the entire business organization. Hence it is imperative to interact with the company’s management before you arrive at a decision.
A favorable dividend policy
The quality of your investment also depends on the company’s dividend policy. Read the documents pertaining to these aspects to evaluate your share of business returns. Ideally, the business should exhibit a history of growing dividend payments. The investor can expect greater income and wealth if the business implements a dividend growth investing strategy.
Rapidly growing Business life-cycle
Business/Enterprise life cycle is an integral aspect when it comes to investing. The stage in which the company stands when it comes to growth and expansion is a key area to consider. Evaluate the business in terms of their product improvisation and innovation strategies.
Competitive business model
In order to withstand competition in the market, any business should create a competitive edge for their product/services. They can differentiate their product based on factors like quality, location, features, etc. This helps the company to retain its market position and block competitor entry.