Things to do before investing in a local business

Investing locally is a great way to support your local community. It’s an investment in the economy of Plymouth and, by helping to create jobs and increase opportunity, it can improve the area where you live. With 875 business a year starting up in the city choosing the right ones to put your money into is no easy feat however. How can you narrow it down? What do you need to know about a business to determine whether or not it’s likely to succeed?

Check out the business plan

Every business should have an up to  date business plan, no matter how long it has been around. It should enable you to see, at a glance, how it’s structured, what its assets are and how it’s functioning. Pay particular attention to cash flow and to the value of the company’s equipment and other material assets. The former will give you a sense of how efficiently it’s working and how much flexibility it would have if something went wrong; the latter will give you an idea of how much of your money you could recover if it failed.

Assess the risks

Before you put money into a business, you need to know just what the risk of failure is. Here you need to focus not just on the business itself but also on the sector it’s part of. Examine the customers it depends on and its potential to attract new ones. Look at its supply chains and what its options would be if one or more suppliers went under. Ask yourself whether, if it were struggling, you’d be prepared to increase your investment in an attempt to save it.

Meet the owners

Never invest in a business without meeting the owners – ideally face to face. It’s not enough just to read their CVs, even if they’re very impressive. You need to find out how much passion they have for what they’re doing. How strong is their commitment to the business? How much do they have to lose if things go wrong? Do they have the skills they need to keep the business growing, and if not, how do they plan to acquire them?

Consider how you can help

The most successful small business investors know that it’s about more than just money. What small businesses lack, and what many investors have, is experience. When you’re looking through the stock events calendar, remember that choosing a business in a field you know well means you can be particularly helpful in providing advice and mentorship. You can also help the owners to network, giving them access to your business contacts across Plymouth to increase their opportunities.

Taking these steps significantly decreases the risk of you losing your money and increases the likelihood of finding a business that’s a good fit. You could even invest in more than one local business and help them to help each other.