Greetings, dear readers!
Kristina Bulankina, editor Seryakov | Investments. Today we will talk about how a beginner private investor can avoid mistakes and minimize risks by investing in small and medium-sized businesses.
At the end – a checklist based on our experience, which will help you to correctly select and check a potential company for investment.
The material will be useful for those who choose a reliable business for investing money and want to know about all the “pitfalls” before making a deal.
- Invest in an industry that you are good at
It will be easier for you to understand the processes, numbers and results if intuitively, based on life experience, you understand what the company is doing.
Imagine: you work out in a fitness center, you like everything. Comfortable exercise equipment, effective fitness programs, competent trainers, pleasant social networks with relevant news, an acceptable cost of a club card. And then you find out that the owner of the center is going to open an even larger sports complex with a swimming pool.
+ You already like the product that the fitness center sells.
+ You understand how the processes inside this business are debugged.
+ You highlight the criteria by which customers choose this particular center.
+ See the number of real users of the product.
This area is close to you, you understand it, it is more difficult to deceive you in it.
Choose it for investment.
2. Choose companies that are located in your area
At the stage of getting acquainted with the processes of investing in a small business, you should have the opportunity to come to the company and personally make sure that it works “like clockwork”.
Getting acquainted with the business from the inside, regularly visiting production, you can assess how well-adjusted the work processes at different stages are, how the business communicates with customers, how it builds the advertising, sales, and marketing process.
After the fact of investing, it is also important to be able to visit the company to see what your investments are spent on, how the business is changing and what result it gives.
Some of our investors think so: “If this business is not in my region, then it does not exist at all.”
3. Invest in “fundamental” business areas with eternal markets
Using the 2020 pandemic as an example, we made sure that, in general, people can refuse a lot, but they will never stop eating, drinking, dressing, being treated, living in apartments and houses. The areas of these “services” were in demand 50, 100, 250 years ago and will be in demand in the future. Conditional liquid for vaping or spinners are hype products with a high level of margin at a particular moment, but it is difficult to predict how quickly this popularity will end.
4. Meet the founder of the business in person
A business must have a face. The owner should not hide his passport data, biography, history of the establishment of the business and his role in it.
And your task is to make sure of his professionalism. It is important to understand that he deeply understands what he does, that he “lives” with this business, “breathes” with its success. You have to catch his entrepreneurial enthusiasm and burning (within the framework of common sense) eyes. His plans should look realistic, the path to achieving the goal should be objective, and his views on the development of the company should be reasoned.