The market is full of scammers who want to make money through your business and leave. To stay away from such bluffers, you must know about the characteristics of a genuine investor.
Here we present the golden rules to spot a more trustworthy financer.
Familiarity with numbers
The number one thing to look out for is your investor’s comfort with handling amounts. You will not like to associate with a lender who only has money but cannot help you in other ways. Being comfortable with calculations and probabilities is a crucial feature of a reasonable investor.
Thus, he/she must have in-depth accounting knowledge and also have a firm grip over critical financial statements. However, the investor does not need to be a great accountant or a former business manager, but a feel for numbers is indisputable.
Numbers not only describe the past and present of a venture but also decide a lot about its future. Feel free to opt for a different investor in such a horrific case.
Understanding for value
Another aspect of a reliable investor is his/her sense of the intrinsic value of the business. Without this skill, an investor will not be able to help you maintain the initial success. A fundamental rule for investors is to have the knowledge and vision to determine the current and future value of your business. In case they are not comfortable while deciding the future of the company than changing ships will be a better idea.
Again, we all know that computing valuation is a challenging task as primary reasons for change like cash flow and its timing are all based on expectations. A reasonable investor will always focus on the sustainability and magnitude of cash flow. He/she will also be concerned about the position of your company, the saturation state of the industry, hurdles to entry, your management skills and the economies of the business.
Should question about the sources of your income
One more feature of a genuine investor is their keenness on understanding the business. Due to their experience, they can define the profitability of the company, the sources you are making money from, the chances of your sustainability, etc. But all these statements are provided based on the information you provide.
Those who are interested in the venture will ask you numerous questions while having a keen look over your documentation. You can differentiate between a scammer and a genuine investor by their queries. A scammer will always be interested in the short run profits and will only be concerned about knowing about your profitability for the closing year. Meanwhile, a reliable investor will allow you to deal with losses in the initial period and will be talking about the long-term prospects of the business.
Their ability to compute the expectations
As per our experts, one big difference between a great and average investor is their ability to compare a company’s fundamentals with its expectations. He/She must be able to comprehend our company’s current financial performance through sales growth, investment needs, operating profit margins and return on investments. While going through the process, the investor will be able to conclude the connection between reality and your stock’s expected growth.
One of the few ways of doing so is by conducting the reverse DCF analysis that balances the elemental value with the current price of your stock. In this way, you can only rely on an investor who has the right knowledge and smartness to judge your real value in comparison to what the market estimates.
While working with such an investor, you can be sure for making profits and maintain your success as he/she will be well versed with the reality and work to make you boost off the charts.
Should be open minded
The statement is more important for those businesses whose products are not termed as “typical.” Entrepreneurs who think out of the box are in need of investors who are not fanatic about the traditional route to success. Always go for an investor who has been dealing with such products as they have fewer chances of leaving the project hanging in the air.
Keep in mind that a perfect investor does not exist, but the points mentioned above will help in dealing with the best possible lender.