The first step in investing in a business is thoroughly vetting said company to ensure that your decision will be a profitable one. It’s difficult to predict the outcome of one’s investment, as the chances of success or failure tend to fluctuate. However, studying your potential investment and identifying any signs of financial risk can prevent you from buying a loss. Below are some crucial red flags to look out for when shopping around the world of business investing.
Unrealistic Sales Pitch
The phrase “too good to be true” is usually applied in a literal sense when dealing with investing. If it sounds like an amazing opportunity with absolutely no repercussions whatsoever, it is more than likely farfetched. Many businesses may promise a high return in a short period of time, which is, more often than not, a blatant lie. Study their strategies and how they plan to achieve this growth in revenue. Unrealistic goals are usually a red flag.
Going off of the previous point, any business that promises a specific type of return at all should be approached with caution. There is almost no possible way to exactly predict just how much an investor or business will profit, so guarantees of any sort are considered red flags. Most scam businesses are accused of practicing this, but a smart investor ignores the bait, and thus saves him or herself from a financial loss.
If a business does not have a paper trail that clearly outlines their financial statements, business goals, and progress, there is a good chance that they are either extremely unorganized, or hiding something intentionally, both of which are enormous red flags. Choosing to an invest in a business is a very big decision, so asking said company to provide you with every detail possible should not be seen as overkill. A trustworthy business is one that will not hesitate to show you every piece of documentation that they have.
An effective sales pitch from a business owner should merely include why to invest, the potential returns, and the mutual benefits. One who applies any sort of pressure or acts in an aggressive manner should immediately raise red flags in your mind. There’s a good chance they are asking that you invest immediately because they are facing a serious issue and need your financial help to resolve that, in which case, a positive return is highly unlikely should you actually follow through. A confident business should highlight the positives of their practice to convince you to invest. One that strong arms you into investing are more than likely on the decline. Always remember that this is your decision, and you have the final say in whether or not you’d like to invest.