Investing your money is critical. As an adult, you do what is necessary and work hard to make money, so it is only right your money works for you too. Putting your money in a low-risk or safe investment is one of the best ways to achieve this. While this is great, some people have lost money to bad investments, so one of the ways to avoid this is to request some key information from the investment firm you wish to put your money in. These article will show you 3 key documents to ask for before you make an investment.
Investing money is still one of the best ways to get an inflow of cash to your bank account. This is because it provides regular income, helps you to always outperform inflation. And the best part is you do not have to actively work for it. Some people may have decided not to invest their money anymore due to the increased number of investment scams in the country recently but this is a classic case of “don’t throw away the baby and the bath water”. Instead of giving up on investments altogether, you can get some important information from the company you are about to invest your money in.
3 Key Documents To Ask Before You Make An Investment
1. Ask For Their Business Plan To Understand The Business
A business is a lot like building a house, can you really construct a house without preliminary sketches? A company with a business model shows the planning, on paper, and the fundamentals of their business. It helps you, as an investor, to make a realistic evaluation of the potential success of their business idea. A proper business model helps you to figure out elements such as:
(a) Their business concept – what problem are they solving and for whom.
(b) The value they will create for the customer.
(c) How their product or service will get to customers.
(d) How their business will stay competitive and all revenue and costs they can have.
With this, you can make an informed decision about whether it is a good place to keep your money.
2. Ask For Their Financial Statement
A company’s business activities and financial performance can be found in financial records called financial statements. Financial statements shows a large amount of information about a company’s capability and likelihood of reaching its financial goals — short and long term. It shows the company’s revenue, debt load, profitability, expenses etc. This information is important to you as an investor because it helps you know if the company is responsible financially. It lets you know if they will keep their promise of consistently giving you your ROI at the due date.
Before you make an investment, ask for these statements;
(a) Cash flow report
(b) Income statement
(c) Statement of equity to know who own what in the company (applicable if you are an equity investor)
(d) Balance sheet to know the current position of the business
3. Ask For Their Compliance Certifications And Registrations
Registered businesses in Nigeria have a certification document from the Corporate Affairs Commission. As from 2020, businesses who got registered newly received a tax identification number from the Federal Inland Revenue Service. This are basic documents you must find in a company’s certifications. While these documents can be forged, you can always cross check on the respective due diligence sites such as the Corporate Affairs Commission’s public company search database. You also want to find out if:
(a) They are regulated by the Securities and Exchange Commission.
(b) They are insure d by the NDIC or any other insurer.
The presence of these document gives a level of trust. It backs the legitimacy of the business entity as a legal operation because these certifications are often too difficult to attain for cheap scams. Further, it ensures compliance with legal standards for bookkeeping and accounting. This establishes that the business is paying taxes, employees are covered under adequate insurance and the business is reporting income to the government. With information, you can rest assured that your money will not disappear without a trace.
Remember, it is your right to KNOW. You should be able to demand for any relevant document and you should be able to assess them at your convenience. Run away from companies who keeps things secret, especially if you are a debt investor. Meanwhile, you can look below to find some of our recent articles specially curated for you
My name is Emmanuel Ejiga. Content lead of OG Capital
I am a writer. Technical writer, song writer, and sometimes fictional writer.