What to know before investing in a business in Nigeria
What to know before investing in a business in Nigeria
Having to invest a substantial amount of money into a business can be scary for entrepreneurs especially when they lack knowledge of the trade in question. Some people prefer to avoid the risk of venturing into something new due to the risk involved, it takes lots of guts to try. Avoiding risk is great risk itself, the more you are scared of taking that bold step of investing in another business, there are willing investors ready to cash in and make more money. However, it is necessary to have proper understanding of certain factors before investing in a new venture.
Prior to venturing into something new, you have to do a thorough self financial evaluation. This is important because it serves as your motivation towards investing because money is the most important factor to consider when you want to invest, there will be no business negotiation when the capital is lacking. Figuring out your financial goals and personal risk tolerance are essential in venturing into a new trade. You can do your financial assessment or you can hire a financial professional to help you out, the most important thing is ensuring you are on the right track.
The financial performance of the business you want to invest into is equally important. You have to determine the success rate of the business, interrogating how profitable the venture is, and the performance history of at least three years through financial reports you should request for. Profit and loss statements, current account receivable, cash flow projections, a balance sheet, budget and tax returns are some financial records you have to look through or hire financial experts to help you through the process. It is equally not bad to examine the company’s strength and weaknesses, current net worth, and expense trends. Needless to say, you have to pay great attention to the company’s balance sheet which contains list of the business’s current assets, liabilities, and net worth.
One of the major reasons businesses fail is lack of experience. A starter should take it slow and steady to acquire experience in the industry before venturing into something new. A lot of entrepreneurs make the mistake of investing with poor business experience. For instance, a highly skilled chef might not thrive successfully as the owner of a restaurant due to poor or less knowledge of marketing, human resources, and financial management. With the skills possessed, the chef could drive a profitable restaurant into the ground owing to the fact that he/she lacks the knowledge and how to go about creating menus that will match the restaurant’s brand, food service strategies, and health department regulations. Do a self-evaluation to find out if you have the ability to run any venture you want to invest in, you are human and there things you can do better, go for ventures that you can easily understand and thrive successfully. The worst feeling is when you have already put in a large amount of capital into a business you know little or nothing about, it goes a long way in affecting you psychologically which is no good for your business.
Available market for the product or service
This is very crucial for an investor. You cannot venture into an enterprise because you are aware of the opportunity. What if the enterprise yields little or no profit? What if the city the business is located lacks a ready market for the product or services rendered? These are questions you should pose to yourself before taking the giant step of investing in a trade. For example, it is a bad idea for an entrepreneur in Nigeria to invest in startups such as running a club house in cities of Northern Nigeria like Zamfara due to religious factors, but in Eastern Nigerian cities like Imo state, such businesses will surely thrive.
Amount for investment
Make sure you do not invest in a business waiting for your capital to save the business unless you will have large ownership of the business or you will be the biggest shareholder with better benefits. You equally have to be sure that you have the required capital for investment. It is better for you not to incur debt over a venture you are not certain about the profit, trade carefully.
This is a great factor for you to consider before you invest in a business. A lot of businesses deliver poor services or products to customers in a bid to make more money with less quality. However, this has great effect and could be the reason for losses incurred in the business, investing in such business could be a big setback for you. For companies with websites, it is necessary to look through their surveys online to know what customers think about their products and services prior to investing your money. Also, having physical conversation with customers is a great way to know how they feel about the business because sometimes what you see on paper is wrong. Speak to the customers without them having knowledge of your position as an investor, talk like you are equally a customer seeking advice to patronise goods or services of the firm you want to invest in. A great advantage of this is that you do not only get to know how much quality the company delivers the public, you also get to know other establishments that are great competitors because you could be referred by customers to another firm during your physical survey for services the company you want to put your capital into also render.
While also making successful projections towards the enterprise you want to put your money into, also consider the impact that comes with its failure so that you will be certain of your financial future. Knowing the consequences associated with failure in your new investment helps you avoid certain risk such as debts from lending institutions like banks. Some entrepreneurs make mistake of taking unbearable risk, it is okay for you to take risks, but you equally have to remain in business, a risk that will end your enterprise if not properly managed is not advised.
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