Business investments are usually a huge undertaking and require a thorough assessment before fully committing. You need to have investment criteria before jumping into any opportunity, especially one that will cost you a lot of money. For that reason, there are a few things that you need to consider before making an investment decision. That way, you can be able to properly analyze your opportunity and see if it is well worth your money and time. These factors are discussed in greater detail below.
Return on Investment
This is arguably the most important thing that you need to consider before throwing your money at an investment opportunity. Return on investment simply means how much money or gains you’ll make from the investment opportunity after you deduct the initial amount invested. It could be in terms of cash, dividends, interest, or appreciation of assets. Different investments yield different rates of return. Some increase at an increasing rate to infinity, others increase at a decreasing rate before finally flat lines, while others will multiply just once. It is therefore up to you to find out if the rate of return is worth everything you’ve put in.
Budget is also something fundamental to consider as it pretty much controls how much you can invest. It can be summarized as the amount of capital an investor has. Generally, the bigger the budget, the easier it is to invest because you’ll be able to cater to most of the costs. Investors are advised to always budget for unexpected expenses as well as emergencies and savings. If your budget doesn’t match the amount of capital required, it would be best to hold off till you can match the capital needed as you could lose everything.
The inflation rate is a percentage that is computed after a set period of time to measure the rise of the average price of goods and services in the economy. Inflation affects the general price of goods and services, which in turn affects the value of money. Knowing the prevailing inflation rate as well as how it is expected to change in the following years is critical when going into an investment. It helps you to estimate if the returns will be overshadowed by an increase in price rates. For example, if the inflation rate is about 8%, then you need your investment to have an interest rate of at least 8% just to break even. Anything less than that will be a loss and not worth it.
You always have to consider the legal requirements of your investment. For starters, you need to ask if the investment is legal. Are there any federal or state laws that could get you into trouble with the investment? You also need to find out the tax implications because that is a vital part of business, and it could get you into a lot of trouble if you’re non-compliant.
By putting the following factors into consideration, you will be set to come up with optimum investment criteria that will yield the most benefits.