Choosing a business to invest in can be a complex process. There are so many factors that can affect the success of any size business that it is literally impossible to guarantee success. That being said there are some things that should very much be on a check list before considering investing in an SME or larger companies. These are things that are perhaps a little less exciting when it comes to the investor pitch but actually build a much more solid platform for business success than just big numbers.
Every business has processes. No matter what the business does even if it’s just one person selling one type of product; they have a process to buy or build the product, a process to price and sell it and a process to record and measure profits. In fact even the smallest business has quite a few processes if you break them all down. A larger business with 200 employees may well have 50 processes or more and it is how these processes are managed that can be critical to business success.
As a business grows the general habit is to use the “that’s the way we have always done it” mentality until something breaks. A client is lost, or customer goes mad on social media with a big complaint. This is a risky plan and one that always falls over at some point. A company, however, that employs business process management principles either buy using out sourced companies like www.opsangel.com or internal staff is likely to avoid problems. The idea of Business Process Management or BPM is to map out all the processes, look for weaknesses and issues and fix them before they break. By doing this a company is showing solid forward planning and is certainly worth investing in.
It may seem like an obvious thing to have but actually good finance management is not as common as many people think. Sure, the pitch document and presentation shows some great numbers but what about how it is all run. How is the money dealt with, who is looking after it all and also is there a plan for lean times or customer compensation issues.
There is also cost control management, how well a company is able to manage it’s costs is critical to long term growth. Managing them is not about being lean, it is about spending when it is wise too and cutting without damaging the business. Again a company may use outsourced examples like http://www.bishopsgate-financial.com/ or employ internal staff to do this. If they employ internal staff it shows they take it seriously but it is worth checking their credentials to make sure they are going to be any good!
Just like money and processes; people need to be managed properly too. And just like processes and money there is a lot more to this than just HR and managers.
People management, of course, involves good staff retention, good HR and support services and good growth plans for key employees. But it is also about understanding the staff, learning what other companies offer and how the business can avoid losing people to competitors. It is also about understanding that each employee is different and they do not all respond to one stimuli. The idea of every new worker running down the line of staff getting a high five (this is a real example) may work for person A but may almost cause person B to leave before they started.
This stretches to management too, with the rise of www.linkedin.com everyone is being offered jobs weekly if not more. How does the business looking for investment manage this? If they face it head on and work with managers to make sure they are happy and stay of the long game then it is a company worth investing in. The same goes for lower level staff too because high staff churn is costly and impacts financial management and can be a result of poor process management in terms of reviews, training and more.
While this list is by no means a fool proof guide to choosing a sound investment it should be a list that is added on top of other factors like turnover, product, sector and the like. A great sounding company that lacks any or all of these factors should be carefully reviewed and the risks should be accepted.