Excluding trading in securities, such as the stock market, which requires daily effort in the case of short-term speculation, we can safely say that, to some extent, investing in an already existing business through a partnership via partial purchase or by fundraising represents a difficult challenge as much as it represents a good opportunity, but to get the most benefit and reduce risks as much as possible, you must take the following factors into consideration before investing in any business:
1- Business managers (executive and financial officials)
2- Business model
3- Financial statements of the business
4- The certified public accountant (CPA)
5- Legal documents of the business, such as contracts of incorporation and amendment, commercial and industrial registers, etc
6- Partnership guarantees
These matters may seem complicated to some, but our role in this series is to simplify them and make them accessible, thus facilitating available investment decisions.
The first and most important factor is those responsible for the business. This may seem strange, but the business manager in small and medium enterprises (SMEs) is more important in terms of evaluating the investment opportunity than the business model itself. You must study the personality of the owners and managers of the business, in terms of:
A- Integrity and transparency
B- Strategic vision
C- Technical knowledge of business
D- Financial knowledge
E- Communication skills
These five factors are considered the basis for evaluating key business managers, and they must all come together in the group of people who manage the business, and integrity and transparency must be a common factor among them. But how can these factors be measured for an investor who is not professional or who is not knowledgeable about the business?
Here you will resort to your intuition and seek the help of someone you trust as your advisor. For example, you can learn about the level of integrity and transparency of someone from direct conversations. If you find a person who is frank and direct and is not afraid to disclose essential company data to a potential investor, and does not try to over-embellish the investment opportunity and does not try to hide the risks, then you are probably in the presence of someone who is honest and transparent. As for the strategic vision, this appears from the project manager’s future plans. Are they realistic or not? A sound strategic vision is often lost between exaggerated ambition, excessive conservatism, and a lack of adventure. As for technical knowledge of the business, this appears either from the age and continuity of the business, from successful portfolio, or from the opinion of an experienced consultant who advises you.
As for financial knowledge, despite its importance, it is somewhat specialized knowledge. Try to ensure that the company you plan to invest in has a professional financial manager, or at least a professional head of accounts, or regular financial reports.
Finally, communication skills are no less important for managers than technical knowledge as many opportunities are lost and many risks befall the business due to the absence of communication skills. You can learn if these skills are present in the managers from direct interviews. Communication skills appear in a person's smile, their humbleness, their smooth manners, their way of praising others and criticizing others in a polite way without being hurtful, their innate calmness, clarity in their approaches, not rushing in speaking, active listening to others, and paying attention to other points of view even if they don’t agree with them or even criticize them appropriately.
In the next article, we will talk about the business model and its importance in choosing the business you want to invest in.