5 Essentials of Small Business Investing

A small business investor may ask, where will I focused my attention? What edge will my business have against competitors?

There are very few research services in Australia but with around 28 million small businesses. What are the things to look when you see a new company? Here are the key points to keep in mind when contemplating on investing in a small business:

Gross Margin

This is the percentage difference between what a product sells in the market and how much cost is needed to produce the product. The resulting ratio is necessary because it is what allows the company to invest in other areas needed to bring the product to the market such as marketing and distribution.

Gross margins are not the same in industries, even by categories within an industry. Those with higher gross margin could sustain increase cost.

Brand Strength

This is the most difficult to assess as it does not with a fixed equation. Ask yourself,  what is so different from this brand? Is it the quality of the product? The packaging? Or the name recall?

CEO

Usually in small business, you have to invest also on leadership, a CEO whom you can trust, who can deliver. Do your homework and check credentials and his track record.

Exit Prospects

Company should be able to identify and know the “strategies”, determine their techniques in acquisition and be able to explain and attract an acquirer. In the same way, exit strategies should also be laid out carefully.

Recurring Revenue

This is the part of the income that is going to continue in the future. In consumer products, these are repeat orders. You also have to determine the frequency of the revenue recur.

The above essentials are not all-inclusive but can help in your evaluation of investments in small businesses. If you require professional business advisory, Melbourne Accountant , a company owned and operated by Nobel Thomas is the leading and trusted Accounting, Tax and Advisory provider in Melbourne today.



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