Finance at your fingertips by Moses Ayiku, Jr. MBA OP/ED
We have been looking at different ways to increase one’s income in the past few weeks. This week we shall refocus on starting a business. The whole point about increasing one’s income is to finance the lifestyle that one would want. An increased income would allow you to save more and to invest more.
When it comes to investments, the magic phrase is, “proceed with caution.” There are so may investment options out there. Each comes with its own costs and benefits. It is important to research all you can about any investment before deciding to put money in that option.
Starting a business is a way to increase one’s income. The big thing here is that it will require a significant amount of time. It may also require some capital. Banks typically do not lend money to start-ups. However, depending on your credit score as well as the relationship that you have with you bankers, this is an option that you can explore. Research shows that most new businesses are funded by the savings of owners as well as money from friends and family. If banks were pouring money into startups, this would not be the case.
An option for new business owners is to consider buying a franchise or acquiring an existing business. Unfortunately, this option is full of many risks and pitfalls. A lot of people are losing money trying this option. One reason for this is that recognizing that many people respect franchises, several dubious entities have set up franchise opportunities that they use to defraud unsuspecting investors. I have met several of such victims and it has been a harrowing experience trying to make a profit out of a business that they have invested a lot of money but is basically not a profitable opportunity.
Again, the magic word is research. Those who invest in dubious businesses, do not do their homework. Even when they do their homework, the degree of difficulty in properly assessing such investments is at times quite high and makes it easy for one to be scammed. One may need to hire a professional to assist. Such professionals do not come cheap. All this leads to an increased cost of entering the business. Remember though, investing in researching a firm is a sunk cost. One could invest tons of money into researching many firms and get absolutely nothing out of it. That is the simple reality. All in all, it is a tricky field and one as usual must be very cautious.
The other option is to start a new business from the ground up. What are you going to invest in? It is important to look at several things before deciding on a particular area to invest in. Every single day people spend money. We spend money on food, shelter, clothing and entertainment.
Looking at any of these areas is a good option. Whatever you decide on, make sure to dig deeper. It is important to understand the area that you are about to take a risk on. Ask questions and seek the answers.
What is the demand for that product? Who are the current suppliers of the product? What is the typical profit margin? Who are the key competitors? What makes them so successful as suppliers? What are the keys to success in that business or industry? What types of licenses are required and how much do they cost? Does one need employees or can one run the business alone for a while? These and many other questions must be asked and answered before you make a decision to invest your hard earned money into any business.
Years ago, a businessman came to my office seeking guidance concerning an investment. The businessman informed me that he went to Germany and bought container loads of A4 paper (the typical copy paper size found in most offices etc. in copiers and printers). When I asked what he needed me for, he explained that he had heard that there was money in paper and decided to invest without doing the necessary research.
However, upon purchasing the paper, he found out that the paper he bought for $20 a box was being sold on the open market for $10 per box. In other words, the businessman was staring at losing over 50% of his investment! The lack of research led to this most unfortunate situation.
Please do the research and be extra careful before you invest. Many will tell you almost anything that you want to hear to take your money. Do not fall for the traps and sweet words.
Please feel free to share with me your questions and experiences on stocks and investments. I will do my best to respond, and, in some cases, I will write on some of these questions.
Your questions and comments can be sent to localtalknews@gmail.com.
