Factors to consider before making an investment decision

Any activity you put your money to in return for profit or accumulation of money over time is an investment. Investment opportunities available are always more than the amount of money available to put in those businesses. In a business adventure, there are three primary outcomes

You can get a;

  • Loss- You will not get back all your money.
  • Profit- You will get more money than the one you invested.
  • Just maintain your money- You will get the exact money you spent.

The sole purpose of every business venture is to make a profit. However, to achieve benefits in your investments,

You need to do the following,

Do preliminary research.

Before you embark on anything, it is always good to get relevant information regarding the legality and genuineness of the project. Looking for funds to invest in a project which does not adhere to the universal acceptable business laws is a huge waste of time.

Assess your financial situation.

Before committing your funds to any particular project, it is advisable to weigh your financial capability. It is wise not to take on a business venture which you have no capability of taking to the completion. Your finances will be tied in work in progress and the result might be an auction done at a loss at your cost. The sale can lead to massive financial losses on a project which would be highly profitable were it taken to successful completion.

Risk analysis of the projects.

There is a rule of business which states that the higher the risk, the higher the returns. However, this does not directly translate that high-risk projects are automatically high return investments. Do your due diligence analysis to ensure that the probability of getting your money back is high. A Project which pays back within a short period is better than the one which takes several years to recoup back the initial investment amount.

Divisibility of the projects.

Investments which can be taken in phases are better than those which must be taken through to completion stage to realize the profits. For example, a real estate business is highly divisible when compared to a petrol station business. In a petrol station, everything has to be fully set to start cashing in. In real estate business, you can start cashing in before completion if you build each floor at a time.

Analyze the profitability of the projects at hand.

Some projects might seem profitable on the surface, but upon a deep analysis, you realize that the return on investment is insignificant. Profitability can be measured by calculating the profitability index which is computed by dividing the all the future cash flows you expect in future with the initial investment.

Build your portfolio wisely.

Business opportunities will always be available, and it is a wise decision not to commit all your funds to long-term projects. Ensure your liquidity is at a favorable level to avoid getting in a situation where you are not able to carry out your daily activities because your cash is tied up in other investments. To prevent this situation, take projects which pay back after a short time and mix them with the ones which pay back after long times.

Have back up and exit strategies in place.

These can be achieved by doing simple activities like taking an insurance cover for your business.

Analyze competition.

You need to know who your competitors are and their financial power to know whether you will be able to break through the market.

Get professional advice.

After considering all the relevant factors; getting professional advice on your investment can be the differentiating factor between losing your money and making a profit.

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