Four Vital Questions Before Opening a Business

7million7years.com:

1. Do I understand the business?
To really “understand the business” you must know exactly how the business makes its money and exactly where the business spends its money. That’s the only way you’ll ever be able to properly analyze the company’s Profit and Loss statement.

2. Am I comfortable with management?
Many of you wrote about trust in management as one of the key questions you should look at. You were spot on with that assertion. But how can you tell if the person pitching you the idea is trustworthy? That’s an art in and of itself, and we’ll dive deeper into that in coming weeks also.

3. What is the business worth?
Many of the companies you’ll be asked to invest in are start-ups (very high risk). Some of the companies you may seek investment opportunities in may be existing businesses (like Joe’s Pizza Parlor). Either way, you want to make sure that once you get to this part of the negotiation you’ll have a good handle on what the business is worth.

4. What do I have to pay?
Many people will argue that they invested in XYZ Company because, in their words, it was a “good company”. But to invest at the highest level of the game, you have to be able to differentiate between a good company and a good price.

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