How to Identify a Good Business Investment Opportunity

Finding a good business investment opportunity could be exactly what your enterprise needs for growth. A promising investment could mean you boost business income, have an edge over your competitors, and put yourself in a more secure position overall.

That’s not to say investments are without their risks though – you need to tread very carefully before making any big decisions, as whatever route you choose to go down, it can have a long-lasting effect on your business – for better or worse. You’ve got to think about your strategy and weigh up every little detail before making a decision.

A business investment opportunity can take many forms, whether it’s simply making a deal with a software company to use their products for an agreed period, to something more radical, like merging with a competitor. Any investment opportunity has the potential to bolster your business if it’s successful. As mentioned though, there is always a risk-reward ratio that you need to make a decision on, by crunching the numbers and asking the question: is it worth the risk?

Investing on a large scale

One fairly recent, well-known example of a successful business investment is Facebook buying Instagram and WhatsApp.

Mark Zuckerberg’s social networking business, Facebook, bought Instagram for approximately $1 billion in 2012. This turned out to be a smart business move, as adding the popular photo-sharing platform to its portfolio meant that Facebook had even more power and influence in the social media world than ever before. Then only two years later, in 2014, Facebook purchased WhatsApp for $19 billion. Expanding its reach into the messaging app market was another strategic decision, as it allowed Facebook to diversify its offerings and increase its customer base even further.

Smaller, more common investments

Looking at smaller-scale examples, that could apply to your own business, AI is something that has taken over the world in the past few years and is something that many businesses have taken an interest in. Many retail businesses have installed AI-powered inventory management systems to streamline stocking whilst reducing waste. And now, it’s more common than not for restaurants to have online booking systems where people can quickly and easily make reservations. Investments like this might seem minor, but they speed processes up and save businesses a lot of time.

Is it a viable investment for the business at this point in time?

Before making any investment, you need to assess whether it is viable, taking into account your business’s financial status. It’s recommended that you review the latest cash flow statement to understand how much money you could put towards an investment, and if it will impact the stability of your finances. This cash flow statement is something that you can use as evidence of viability for your peers and advisors, as it underlines your current financial health.

If your income is currently strong and reliable, with the capacity to fund the investment, then it might be time to put a business case forward to the main stakeholders that you’d need to get on board. If your financial strength is less reliable, then it might be something that you have to revisit at a later point when things hopefully improve.

What could be gained from the investment?

Think about the possible gains that could be made from the investment. For example, it could help to increase profits, widen your market share, speed up internal processes and open up even more opportunities. It’s important to think about what you want to gain and how you could quantify this into KPIs that reflect the value of the investment. Later on, this can prove whether or not it’s been a worthwhile investment and if you’ve met your goals.

What are the potential risks involved?

As we’ve touched on, investments carry risk. They could expose you to financial loss, disruptions within your team and operations, or simply not bring in the desired results. You need to evaluate the potential problems that could crop up before committing to any investment. What would the implications of these issues be? Could your business handle the fallout? These are important questions you need to seriously consider.

Is the risk worth the reward?

Taking a step back and looking at the bigger picture means you can decipher whether or not an investment carries enough reward to be worth the risk. When you’ve done an analysis, crunching the numbers and asking the right questions, it’s then worth putting a pitch together to the people it will impact, to get any of their thoughts on whether or not it’s worth pursuing.

What you want to gain and the likelihood of this happening

Write down all the aims and the timeframe you hope to achieve each one. Try to be as specific as possible, taking into account how this could be measured. Assess how likely it is that you’ll reach this based on previous experience or what you can see from market trends and competitors. Do plenty of research in your market to see if there is a demand for what you’re looking to do.

Can you get recent data on the investment performance?

Data is highly valuable, as it can indicate how viable an investment might be. Data provides evidence to you and stakeholders on the impact of an investment, before and after you’ve gone ahead with it. It can be what sways people to get on board with the idea. With some types of investment, you could have a trial run to see how it goes, for example, if it’s a new piece of software, you can use it for six months to see how it helps you. If you can then report that it’s increased efficiency by 60%, then this is something that will solidify your argument to keep it an active, ongoing investment.