The given case analysis involves a proposal from two friends where each wants an investment $10,000 in his/her business for a 25% stake in the business. A decision should be made on investing in one of the business. Before making the decision, there are questions that will be asked to each friend to aid in the decision making. The question, how the questions will help the decision and concerns regarding the answers are highlighted as follows.
How many years has your business been in operation?
The length of time the business has been in operation is important in making the decision as it would help to know whether the business is a start-up or has been in operation for some time.
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The concern for the question is that a business that has been operation for a longer amount of time would be given much more consideration.
What were your sales and profit last year?
Information regarding sales and profits is important to show whether the business has a strong financial structure in terms of number of customers and money management.
In case a business has been experiencing poor sales and low profits, there will be concern about investing in the business.
What are the risks with the investing in the business?
Information regarding the risks of the business will be crucial to assess whether the risks associated with the business are worth investing the $10,000 for 25% stake.
The business with the lower risk will be put in consideration when choosing a business to invest in.
How do you plan to use the $1,000?
It is important to know how the $1,000 that I plan to invest is going to be used. Whether it is to enter a new market or launch a new product.
The invested money should be used to expand the business by expanding sales and not trying a new product. The business trying a new product will raise a red flag regarding poor business structure.
Where do you see the business in the far future between 5 to 10 years?
The future of the business is important as it will show whether the 25% stake in the business could result in a greater profit in the far future.
The idea and the vision of the company will be investigated to know whether the business has the right idea to realize a bright future. The business that has a bright future will be chosen for investing.
