All investment comes with risk. But the more research you do, the more you can mitigate that risk. So if you’re thinking of investing in a company – it pays to do a company check first.
There are many ways to invest in a company, from the traditional route of buying stocks and shares to the modern trend of crowd funding. With the rise of technology, investing in start-ups has become a lucrative industry – provided those companies can make it through the teething stage. As global beasts like Facebook, Twitter and Airbnb have made clear, a seedling idea can grow into a billion-pound business and enact monumental change to industries – from communications to hospitality.
But while we’ve all heard about the Facebook millionaires – created overnight from the company’s IPO – there are thousands of companies that don’t make the grade. Important lessons have been learned from the dotcom bubble and wise investors will thoroughly investigate a company’s financial health and prospects, knowing that appearances can be deceptive. Getting under the hood of a company requires a multi-faceted approach, but conducting a detailed company check can be an important place to begin.
While it’s always important to do your due diligence, this holds particularly true for people who have most at stake – such as angel investors. Angel investing has its roots in the 1970s, when wealthy individuals would finance and invest in theatrical productions, hence their ‘angel’ name. Nowadays, it refers to affluent individual investors who provide capital for business start-ups – usually in return for ownership equity or convertible bonds. While there are also angel groups, typically investors act as individuals and, because they’re investing their own funds, there’s a higher level of risk. Which is why a company check is so important.
Company checks can reveal everything from a company’s financial performance and structure to the past employment of its directors. Company accounts, annual returns and annual reports can help build a critical view of a company’s health, as well as past, present and projected future performance.
While the senior management of any company seeking to attract investors will naturally be keen to highlight the benefits of investment, it’s important to still do your own research and read between the lines, to make sure you build a holistic picture of the company, based on fact not impression. A high employee or director turnover will need investigation. It can also be helpful to look at the directors’ professional history, identifying the types of companies they’ve previously worked for and the strengths and experience they will likely have developed.
Information can be sourced directly from Companies House, with basic facts provided free and more detailed information available at a cost. Additionally, through the County Courts you can find out if there are any county court judgements in process. However, credit check companies like Graydon offer supplementary services, such as financial and credit analysis, that can provide a more in-depth, 360° view of a company, putting this in perspective of sector trends and expected performance.