So, you’ve made it. You’ve managed to build up enough capital to seriously consider investing in a business. First of all, a congratulations are in order. Don’t get too full of yourself though; there’s still a lot of work ahead of you. In order to make sure you’re making a smart decision, there are various questions which you need to ask the upper management of a company you’re targeting. Here are some of the most important ones.
First of all, where do they see sales going over the next one to two years? Getting some foresight into the next two years of the business’s performance will give you an excellent idea of the risks and opportunities that lie ahead. Furthermore, by keeping the question open-ended, you’ll allow the manager to reply with a broad and detailed response. They’re likely to touch on a range of different factors which will be very valuable to your final decision. If you know that the company is pretty desperate for investment, be sure to take everything they say with a pinch of salt. CEOs can be pretty good at sugar-coating things; that’s partly how they made it this far! If they’re focussing on the pros and stepping around the cons, ask more direct questions.
The next big thing you need to find out is the risks the company faces in sourcing their raw materials, or upholding the current cost of services. This will open your eyes to all the different factors which could have an impact on the materials and labour costs which come with sourcing. For example, if the company you’re looking at sells hydraulic hoses, there may be potential pitfalls in their main source of rubber. If these kinds of factors swing the wrong way, it can lead to the value of your stocks plummeting overnight. The response you get about these risks should give you a much better idea of the business’s future growth and profit margins, and show you how much you stand to gain or lose. For the best insight possible, you should be stacking these risks up against the sales projections they’ve already given you.
Finally, ask about the biggest competitors in the industry the company operates in. Of course, there have been instances where an underdog start-up has gone through incredible growth, and beaten the competition against all odds. However, there are certain industries which are dominated by a few big names, making it incredibly hard for any smaller businesses to make real headway. By asking about this, you’ll get a clear picture of who the current competition is, and who it could be in the near future. It may also turn your attention to innovative new products which are in development, and poised to disrupt the whole market. The manager or CEO will probably also tell you about their plans for dealing with this competition.
Before you buy a single share in any business, be sure to ask these questions. In some cases, it could save you from bankruptcy!