How to Invest in a Good Business? — Super Business Manager

There are many ways to invest in a good business.

Firstly, you can start your own business and become an entrepreneur. This is the riskiest option because you invest your own money in an unknown business venture, but it can also be the most rewarding. If you have a great idea for a business, you can start your own company and become your own boss.

You can also invest in a private limited company, or so called private equity. This is a more risky option, but it can also be more rewarding. You can invest in a private company through a venture capital firm or angel investor.

Finally, you can buy shares in a publicly traded company called a public limited company. This is the most common way to invest in a business. You can buy shares through a stockbroker or online trading platform.

All about how to invest in a good business

A good business means a business that is performing well on the market. Here are major four factors that will help investors to invest in a good business:

Business model you can easily understand.
With favorable long-term prospects for growing sales revenue and profit.
Available to purchase at the very attractive price.
Operated by competent and honest people.

Let’s now take a look at each of them in details.

1. Business model you can easily understand

A business model is a plan for how a company will make money. It describes how the company will create, deliver, and capture value. Business models can be very complex, but they all have some common elements.

No matter what a business model is, it should give the firm a competitive advantage. A competitive advantage is something that gives the business an edge over its competitors. This could be a unique product (good or service), a strong brand, or a loyal customer base.

Here are the four main elements of a business model:

Value proposition. What value does the company offer to its customers?
Customer segments. Who are the company’s target customers?
Channels. How will the company reach its customers?
Revenue streams. How will the company make money?

The value proposition is the most important element of a business model. It is what sets the company apart from its competitors and attracts customers. The customer segments are the groups of people who are most likely to buy the company’s products or services. The channels are the ways that the company will reach its customers. The revenue streams are the ways that the company will make money.

15 Revenue Streams. Where Do Businesses Get Revenue From?

Business models can be changed and adapted over time. As the company grows and changes, it may need to change its business model to reflect its new needs.

Here are some examples of different business models:

A. Direct to Consumer (D2C). In this model, businesses sell their products directly to consumers, bypassing traditional retailers.

B. Subscription model. In this model, businesses charge customers a recurring fee for access to their goods or services.

C. Freemium model. In this model, businesses offer a basic version of their product or service for free, and charge a premium for additional features or functionality.

D. Franchise model. In this model, businesses sell the right to use their brand and operating system to independent franchisees.

These are just a few examples of different business models. The best model for a business will depend on its specific industry, target market, and goals.

Here are some additional tips for choosing a business model to consider:

Entire industry: What are the common business models in your industry? What are the pros and cons of each model?
Target market: What are their needs and wants? What are they willing to pay for?
Company goals: What do you want to achieve with your business? Do you want to grow quickly? Do you want to make a profit? Do you want to have a positive impact on the world?

By considering these factors, you can choose a business model that is right for you.

2. With favorable long-term prospects for growing sales revenue

A business that is selling more products or services is likely to be profitable. Sources of sales growth in a business organization typically come from revenue from sales of products as well as mergers, acquisitions and takeovers as well as productivity increases.

A. Invest in businesses that are growing sales revenue. A growing business is more likely to be successful in the long run. Look for businesses that are expanding into new markets, launching new products or services, or increasing their market share. There are many prospects for growing sales revenue. Here are a few ideas how businesses grow sales revenue:

Increase prices. This is a quick and easy way to increase revenue, but it can be risky if it’s not done carefully. If you raise prices too high, you may lose customers.
Sell more products. This is another obvious way to increase revenue. You can do this by expanding your product line, offering new services, or selling more of your existing products or services.
Increase sales to existing customers. This is often the easiest way to increase revenue. You can do this by upselling or cross-selling to existing customers, or by encouraging them to buy more frequently.
Find new customers. This can be a more challenging task, but it’s essential for long-term growth. You can find new customers by expanding into new markets, developing new marketing campaigns, or partnering with other businesses.
Improve customer retention. This is important for both short-term and long-term revenue growth. You can improve customer retention by providing excellent customer service, offering loyalty programs, or making it easy for customers to do business with you.
Focus on your target market. Who are your ideal customers? What are their needs and wants? Once you understand your target market, you can tailor your marketing and sales efforts to appeal to them.
Create a strong brand. A strong brand will help you stand out from your competitors and attract new customers.
Provide excellent customer service. Happy customers are more likely to do business with you again and refer you to their friends and colleagues.
Invest in marketing and sales. You need to invest in marketing and sales if you want to grow your business. There are many different marketing and sales channels available, so you need to choose the ones that are right for your business.
Track your results. It is important to track your results so you can see what is working and what is not. This will help you make changes to your marketing and sales efforts as needed.

B. Invest in businesses that are profitable. A profitable business is one that is generating more revenue than it is spending. This means that the business is able to generate Cash Flow, which can be used to reinvest in the business or return to shareholders.

3. Available to purchase at the very attractive price

Share price of a business is not high when the P/E Ratio of an individual stock is lower than the average P/E Ratio of S&P500. In this case, downside risk is low and the future growth potential is good.

When a business is selling at an attractive price, it gives investors an opportunity to earn significant capital gains in the future. Here are specific determinants of a business trading at attractive prices:

P/E Ratio < 20-25. Low P/E Ratio is lower than 20-25. P/E Ratio compares a company’s stock price to its Earnings Per Share (EPS). A high P/E Ratio indicates that investors are willing to pay a premium for the company’s stock, perhaps because they believe the company is growing rapidly or has a bright future. A low P/E Ratio may indicate that investors are not as optimistic about the company’s future prospects. The P/E Ratio is calculated by dividing the current stock price by the company’s Earnings Per Share (EPS). For example, if a company’s stock price is USD$100 and its Earnings Per Share (EPS) is USD$5, then the P/E Ratio is 20.Additionally, if P/E Ratio is 10, it will take 10 years for Earnings to pay a Price of one share from those earnings.
P/Sales Ratio < 1.5. LowPrice/Sales Ratio is lower than 1.5. P/Sales Ratio is useful for comparing companies in the same industry. It compares a company’s stock price to its Sales Revenue. It is calculated by dividing the company’s market capitalization by its Sales Revenue. A higher P/Sales Ratio indicates that investors are willing to pay more for a company’s stock relative to its Sales Revenue. This may be because the company is growing rapidly, has a strong brand, or is in a favorable industry. A lower P/Sales Ratio may indicate that investors are not as optimistic about the company’s future prospects.
P/Book < 1.5. LowPrice/Book Ratio is lower than 1.5. P/Book Ratio offers margin of safety. It means you are paying fairly and accurately for what the company’s Tangible Assets are worth in case of liquidation. It compares a company’s stock price to its Book Value Per Share. A high P/Book ratio indicates that investors are willing to pay a premium for the company’s stock, perhaps because they believe the company is undervalued or has a bright future. A low P/Book Ratio may indicate that investors are not as optimistic about the company’s future prospects. The P/Book Ratio is calculated by dividing the current stock price by the company’s Book Value Per Share. For example, if a company’s stock price is USD$100 and its Book Value Per Share is USD$5, then the P/Book ratio is 20.
Graham Number < 22.5. The so called Graham Number for undervalue stocks is a mathematical formula developed by Benjamin Graham, a famous investor and author, to help investors determine the maximum price they should pay for a stock. The formula is:

Graham Number = √(22.5 x EPS x Book)

Where EPS means Earnings Per Share and Book means Book Value Per Share. The Graham Number is based on the idea that a stock should not be worth more than 15 times its earnings per share and 1.5 times its Book Value Per Share. A stock that is priced below Graham Number is considered to be undervalued. However, it is important to note that Graham Number is just one tool that investors can use to make investment decisions. It is important to consider other factors, such as the company’s financial health, its competitive position, and its growth prospects, before making a purchase.

For example, you may want to determine whether Company X’s price per share is within buying range using Graham Number. Currently, Company X is trading at USD$55 per share with an EPS of USD$4 and a BVPS of $20. To find Company X’s Graham Number, you would multiply 22.5 x USD$4 x USD$20, then take the square root of that number.

Here’s how it looks: √(22.5 x 4 x 20) = √1,800 = 42.43

In this case, Company X’s Graham Number is currently lower than its current cost per share of USD$55. Since Graham Number is the upper limit of what you should pay for a stock, you shouldn’t buy shares in Company X at USD$55 per share.

4. Operated by competent and honest people

When in doubt, invest in businesses with strong management teams. The management team is responsible for the day-to-day operations of the business. A strong management team will have a clear vision for the business and the ability to execute on that vision.

How to be a good leader?

Here are a few tips on being a good leader and leadership which you might find useful:

Always do the right thing. Set goals which will benefit you, benefit stakeholders, the whole society and natural environment in the long-run. For instance, in your private life, you can lose weight, save water, minimize food waste, drive slower, invent products that change lives for better.
Know what is right. Understand the differences between moral and immoral behaviors, e.g. do not steal money, do not cheat on your wife or husband, do not bully your classmates, always eat dinner with your family.
Ask why something happens. Do not blindly follow whatever other people ask you to do, instead make your own decisions. Do not let others to decide for you what you should eat or drink, be confident about your choices. Do not eat too much fast-food despite tempting TV commercials, question why companies put so much sugar in food products.
Motivate and inspire others. Show them what you do, how you do it, and why you do it.
Share knowledge to empower. Spread valuable knowledge to your friends and followers, so they can also achieve higher quality of their lives – they will thank you for it. They will be grateful. Do not shy away from pointing out bad quality products and services.
Care about people. Do not cause any harm to others by paying attention to what you do and what you say. For example, slow down before reaching the crossroad when driving. Never laugh at those who have less money than you, or are less fortunate than you.
Foster change and innovative solutions. Try to change the things in the world which are not good enough. For example, change the way you cook by trying new healthy recipes. Choose to get to work by bike rather than a car.
Take actions. Actions always speak louder than words. You can stop buying from companies which act unethically, or refuse to fully agree to terms and conditions which service providers require you to comply with. Everything is negotiable and you get what you negotiate, not what you deserve. Question whether your company acts ethically?
Speak out about problems. Many problems which you face in your daily life are common for all people around the world. You may tell your friends about the product which you purchased being of low-quality, or inform your family about restaurants which offer disgusting or questionable food.
Take risks. Do not be afraid of doing things in a different way than the majority of people. For instance, start selling fresh fruit juice, organize weekly meetings with your friends to discuss health-conscious decisions.
Make strategic decisions. For your own sake always do things in your life that bring benefits to you in the long-term. Do not take shortcuts – they will always come back at you to bite you in the ass. Stop smoking! Start cooking healthy meals. Make friends with people who care about you. Start reading more smart books instead of watching pointless TV shows.
Respect others to gain respect. Keep your promise. Do not mislead people. Do not lie. Do not gossip. Do not be evil!
Follow natural instincts. Stick to your guts and listen to your inner voice when making decisions after you also analyze facts and numbers. Privately, stick to eating healthy food that makes you feel good. Stop drinking too much sodas and alcohol. Exercise more often to feel happier afterwards.

How to be a good manager?

For those of you who study business management to become managers, or already work as managers, either at multinational companies or start up your own businesses, I wrote up a couple of ideas that may help you to become even better at management:

Do things right. Your primary job as a business manager is to achieve organizational goals. You will deal with making the big decisions set by the CEO and the directors happen. Particularly with the questions such as ‘how to do it’, ‘when to do it’ and ‘who should do it’. But remember to never neglect doing the right thing at the same time. Blend earning money for the business with being the righteous person to achieve long-term success of the company that you work for, or your own business.
Direct and control other employees. So, your workers perform at their best. But do not be a bully. You are also responsible for performance, safety and health of all members of your team. Never sacrifice safe environment at the expense of increasing profits.
Delegate tasks. You are not able to do everything by yourself, so delegate often to your subordinates. Do not shy away from passing on roles and responsibilities to your employees at the lower level of the organizational chart. Give others a chance to learn new things and progress.
Be both task oriented and people oriented. Be nice to your subordinates and they will pay you back with getting things done on time and on budget.
Conform to organizational norms. Follow determined rules and policies set by your organization. But, never agree to accept any unethical policies that may be harmful to other people or the society.
Implement the higher-level decisions. The decisions are made by the CEO and directors. Your job as a manager is to implement those decisions. No decision should have negative consequences for stakeholders.
Minimize the risk. Plan the course of action and consistently monitor progress. Keep order and control. Also, pay attention to details in order to avoid costly mistakes. Once you agree to work for someone else, always try to do things the best you can.
Make the employees listen to you. This is done through mutual respect rather than force. Delegating and empowering that goes along with growth opportunities for everyone is way more effective than micro-managing your subordinates’ work. Openly analyze both successes and failures.
Rely on things you have learned in the past. Use business theories, tools and techniques to solve problems. But also listen to your gut-instincts, and learn from previous mistakes.

Other indicators of a good and stable business may include the following:

– Dividend Yield Ratio > 4%. You can compare it with saving rates and bonds.

– Dividend Cover Ratio > 2. It guarantees stability of dividend payments from Net Profit After Interest and TAX.

– Dividend Payout Ratio between 40% and 60%. In this way, half of Net Profit After Interest and TAX is paid out as dividends, and another half is kept as Retained Profit for reinvestment into the business and future growth.

– Return on Equity (ROE) > 7%. It provides prospects of steady and increasing dividend payments.

– Gearing < 0.5. This ratio shows long-term financial health, so the lower ratio the better. Healthy Gearing is around 25%. Businesses that are conservatively financed heave Gearing between 0%-20% as Gearing can be calculated dividing Long-Term Debt by Market Capitalization or dividing Long-Term Debt by Equity.

Always remember that when investing in any business at any point in time, it is important to do your research and understand the risks involved. You should also consider your investment goals and risk tolerance.