First time Share Buyer - into a growing business

PinkButterfly_2

Hi there
I have been looking for investment opportunities and have discovered an already established business looking for private investors. What questions do I need to ask though before committing to buying the shares?

Sorry if I sound dumb but my friends who are already good share-buyers don't seem to want to share their advice!

Many thanks in advance!

srcandas

How do you know it is a growing business?

Why does it need investors?

If it is a good bet why are the current investors not jumping in?

Are you aware that private shares are not very liquid?

Private investors are not normally confused with share buyers. Do you know the difference?

Linton

If the business is established why do they need your money? Are you proposing to put a serious amount into this? Is it a sizable proportion of your total savings?

Private investing is very high risk, investing in just one company is very high risk. Many companies go bust. It may not be possible for you to sell your shares should you need the money as no-one may want to buy. Unless you are rich enough to bear a complete loss of your investment and have the business, industry and accounting knowledge to estimate the real value of the company I suggest that you steer well clear.

PinkButterfly_2

Thanks guys! This is all good advice and good questions that I need to ask the company.

This company (fast-food) was only one branch and now have several branches and wants to expand more.

One good question to ask is why they are looking at private investors now and who their current investors are!

I am not looking to put a serious amount, I am not that rich lol. But would like to have some shares in it as I see the potential of this growing business.

What is the different between private investors and shareholders. They have said that this a rare opportunity for private investors to buy shares into the company.

Linton

PinkButterfly wrote: »

Thanks guys! This is all good advice and good questions that I need to ask the company.

This company (fast-food) was only one branch and now have several branches and wants to expand more.

One good question to ask is why they are looking at private investors now and who their current investors are!

I am not looking to put a serious amount, I am not that rich lol. But would like to have some shares in it as I see the potential of this growing business.

What is the different between private investors and shareholders. They have said that this a rare opportunity for private investors to buy shares into the company.

What else could they say???

You say that you are not looking to put serious money into the company - I would be surprised if people wanting private finance would be bothered with a few hundred or a small number of thousand pound investment.

One key difference between a private investor and an investor on the stock market is that the latter can always sell. There is a published price at which people are prepared to buy. With a private investment there isnt a continuous buying and selling of the shares and so no-one knows what the real value is. This can only be tested when you want to sell the shares, and if there is no-one around who wants to buy - tough, the shares arent worth anything at that time. This type of issue is known as "liquidity" or in this case illiquidity.

Strongly suggest you comsider buying into something normal like a fund. It almost certainly will never go bust, you can invest small amounts, and you can always sell.

PinkButterfly_2

Can you give me more advice about funds - are they the ones you can buy from a Bank - sorry am clueless! Everyone around me tells me they have shares but won't tell me anything else. My pension fund provider sends me various literature about funds but I don't know where to start!

benalder284

Be very cautious - I agree with previous posters. Also ask how comfortable are you analysing annual accounts, management accounting information, legal documents relating to shareholdings etc - if not then be even more cautious. Also remember that asking questions of/relying on answers from anyone already associated with the company won't really constitute independent advice that you can or should rely on.

JohnRo

For someone who isn't that rich then perhaps you ought to be a sight more cautious with what you do have.

Do you have any access to information about their accounts? Has any formal literature been offered? Do you know whether this new money they require is really for new expansion or is that just your assumption and it's really needed to prop up the existing business? Have they over extended and now need new capital because they're struggling to cover costs? Did they see you coming from a mile off?

All that said, nothing ventured, nothing gained. I know the fast food business has been compared to illicit drug dealing in terms of profit but that's not very scientific and I'd have thought you need to be crystal clear about what exactly it is you're buying in to for something so high risk and what's in it for you.

grey_gym_sock

PinkButterfly wrote: »

Can you give me more advice about funds - are they the ones you can buy from a Bank - sorry am clueless! Everyone around me tells me they have shares but won't tell me anything else. My pension fund provider sends me various literature about funds but I don't know where to start!

you can buy funds from a bank, but that's not usually the best place to buy them, as they tend to offer a limited, overpriced range of funds. a better bet would be to use a "fund supermarket", which is (as you might guess) somebody through whom you can buy a very big selection of funds from different fund managers.

you probably already have funds inside your pension?

if you want to invest more money, the most obvious ways to do it are usually: (1) higher pension contributions, or (2) contribute to a stocks & shares ISA (e.g. via a fund supermarket).

R_P_W

Don't do it!

jimjames

R_P_W wrote: »

Don't do it!

Excellent advice!

If you are not rich and have no other investments then it could be madness to buy shares in a single, unlisted company as the chances of you losing ALL your money are very high.

I quote the HL website as it is very informative but there are other fund supermarkets available too that allow you to start off investing in an ISA from £50 per month.

http://www.hl.co.uk/