Once professionals start earning, a lot of them will set aside money and look for ways to invest. Investing is one way to make their money work for them, and a good investment allows their money to grow so that they can reap the rewards of their labor. There are many types of investments that professionals can consider trying, such as stocks, bonds, mutual funds, insurance, and cryptocurrencies.
A business is another option for investment, and investing in a business helps the investor grow their portfolio while also helping the business owners. However, before jumping into a new investment, there are some things that you need to consider and questions that you need to ask.
In an episode of FUNDamentals on PLUS Network, registered financial planner (US-based global certification) Edric Mendoza talks about the basics of investment, business, and gives an example of a business and weighs the pros and cons of investing in it. Mendoza says that before investing in a business, there are important questions to ask:
- What is the product that you will be investing in?
- Who are the people behind the business? Do they have a good track record?
- How much will the investment cost?
- How much will you make from your investment?
- How long is the payback period? How long will it take before you get your investment back?
These are just some of the questions that you should ask before investing in a business. However, despite the high risk that comes when investing in a business, there is also a potential for high reward. Mendoza quotes Efren Cruz, a pioneer in the personal finance industry in the country, who said that “if your investment return is more than 10%, you want to look at business.” There is a potential return in business that is hard to get from other investments, and if you are looking for a return of more than 10%, you can think of a business as a possible investment.
When considering investing in a business, Mendoza also quotes Tal Ben Shahar’s Three Question Process, which is Purpose, Passion, and Skill.
- 1. What is your Purpose? Is it aligned with the business you’re looking at?
- 2. What is your Passion? It is aligned with the business you’re looking at?
- 3. What is your Skill? Does it fit with the business you’re looking at?
Aside from this questioning process, Mendoza also examines 5Ps that one should consider before putting their hard-earned money in a business.
- Product – What is the product or service?
- Price – How much is it?
- Place – Where is it being sold?
- Promotion – How is this product or service being pushed? Is there a market for it?
- Participation – Is there a particular community of people who like the product or business?
Another important question when it comes to investing in a business is whether you can manage operations, since a business has many different aspects such as marketing, finance, human resources, and more. If you feel that you have the ability to invest in a business, and if you are young and able to take risks, then you can consider investing in business. If you are older, however, you need to consider whether it fits your goals and make sure that your investment money is something that you can lose.
At the end of the day, Mendoza says that at the heart of being able to invest is the principle of good stewardship. If we have resources, we want those resources to grow, and investing it is just one way to see that growth. For more financial tips, you can watch more episodes of FUNDamentals. For more stories for professionals, visit PLUS Network on Facebook, Instagram, Twitter, and YouTube.