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How to choose the right investor for your company

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If you are a business owner, in today's struggling economy, you may be tempted to get on board with the first investor that comes along. While the idea of fast money can be appealing, it is important to keep in mind that fast money does not always mean easy money, or most importantly the right money for your business. Business owners should take the time to research their potential investors to make sure that they are the right fit for your company. Here is what you need to know about how to choose the right investor for your company-

  • Take the time to do background research-Remember that no matter how badly you need investment money, there's no reason to get it from a deadbeat or felon. There are several internet-based reference search companies that can provide quick and easy ways, to know if your investor has any skeletons in the closet.These reference search services access databases of business licenses, criminal records, bankruptcies, real property transactions, civil court judgments, even utility bills. Best of all most of these types of searches cost very little, but could save you thousands in the end. Experts advise that while searching you should look within the search results, for inconsistencies. Many times the absence of data is more important than the info itself. Keep in mind that if very little is available on a person, it could be that they simply pay cash for everything, or it could be much worse, like their whole personality is fabricated. Keep in mind as well, that multiple occurrences of different names, or different spellings of the same name, may indicate previous fraud. Finally, it is advisable to use background reports to look for someone involved in multiple lawsuits. This is because people who have been in litigation tend to end up in litigation, and whatever the reason you want to avoid those people.
  • Know the investor's personality-It is important to have a clear understanding of your potential investor's personality, and more importantly know if the two of you can work together. To gain personality clues, it is important to listen to the questions investors ask. For example: an obsession with operational detail is often a sign an investor will worm his way into day-to-day company management. If you need additional management help that may be to your advantage, but if you don't you may find yourself with constant conflict.
  • Set clear expectations-It could be that the most overlooked aspect of taking on an investor is setting expectations. Keep in mind that even when a formal contract is in existence, it rarely addresses issues like mentoring and management. Do you expect your investor to help manage the business or to keep his distance? You should let him know in advance. You should also have a clear understanding of how much you will be expected to report to your investor. You will need to know how much you are obligated to tell the investor about your finances and operations, since most investors will ask for monthly financial statements.
  • Be able to tackle problems quickly-As a business owner it is important to understand that there's one area that deserves rapid action, dealing with a potential problem investor. At the first sign of things going wrong, you should begin a clear and professional dialog. Keep in mind that these conversations are hard because they're confrontational, but there is an essential part of the long-term success of your business. The bottom line is that the investor is a permanent part of your life, and it's not acceptable to have a bad relationship. If you sense your potential investor will be unable to do this professionally, that alone may be a red flag to move onto considering someone else.
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