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How to Vet an Investment Like a Pro: 5 Key Steps from Wade Reed’s Wealth Acceleration Podcast
Investing is an art and a science, but without a roadmap, it can also be a risky gamble. In Episode 16 of the Wealth Acceleration Podcast, Wade Reed shares insights from the Aspire for More Mastermind in Dallas, where he explores actionable steps for thoroughly vetting investment opportunities. Here are five main points from his discussion, each with actionable advice to help you make smarter, data-driven investment decisions.
Begin with Industry Research
Wade emphasizes starting with a deep dive into the industry of any potential investment. Knowing the landscape, key players, and market dynamics is essential.
Action Step: Identify industry leaders and evaluate their market share. Look for trends like growth rates, competition, and consumer demand. Understanding these factors helps you determine if the industry aligns with your goals and if the company you’re considering has a unique value proposition.
Analyze the Financials
Wade explains that a solid investment must be backed by strong financials. Financial reports can reveal much about a company’s profitability, cash flow, and operational efficiency.
Action Step: Review key financial statements—income statements, balance sheets, and cash flow statements. Focus on metrics like profit margins, revenue trends, and debt ratios. Wade recommends starting with basic financial education (like his “Personal Finance Essentials” course) to build confidence in analyzing these numbers.
Evaluate Operations and Key Metrics
Operational efficiency is a critical factor in any business’s long-term success. Wade stresses that understanding a company’s internal processes, key performance indicators (KPIs), and organizational structure helps assess its capacity for growth and stability.
Action Step: Ask for a company’s KPIs, scorecards, and workload capacity indicators. Look at customer satisfaction metrics and the organization’s chart to understand how well it functions. Operational transparency indicates the company’s ability to scale and adapt to changes.
Assess IT and Technology Usage
In today’s market, technology is a backbone for efficiency, communication, and customer engagement. Wade highlights that outdated or mismanaged technology can drain resources, while proprietary tech can be an asset.
Action Step: Review the company’s tech stack, software costs, and online presence. Ask if their systems are up-to-date and efficient or if there are potential upgrades needed. For companies with proprietary technology, evaluate how it impacts the business’s efficiency and if it holds competitive value.
Confirm Legal and Compliance Factors
Legal issues and compliance requirements are often overlooked but can significantly impact an investment. Wade shares stories of investors who faced legal complications due to misaligned corporate structures or lack of compliance.
Action Step: Verify the company’s corporate structure and ensure all necessary parties are involved in agreements. Wade recommends using background checks and legal services for complex investments. Understand any industry-specific regulations, such as HIPAA or cybersecurity compliance, especially if the business deals with sensitive information.
FINAL THOUGHT:
Investing wisely requires research, patience, and a cautious approach. Wade encourages viewing every potential deal as a “no” until proven otherwise by data and criteria aligned with your goals. By following these five steps, you can navigate the complexities of investment opportunities with confidence, making informed choices that align with your financial vision.
KEY TAKEAWAYS:
- Masterminds provide synergy and build relationships.
- Investing requires a skill set that can be learned.
- Underwriting is essential for evaluating investment risks.
- Look for reasons to invest rather than reasons not to.
- Industry research is the first step in underwriting.
- Financial metrics are crucial for assessing investments.
- Operational history provides insights into a company’s performance.
- IT and technology can reveal inefficiencies in a business.
- Legal considerations are vital in investment transactions.
- Personal values alignment is key in investment decisions.
Episode Resources
- Personal Finance Essentials – Wade’s foundational course on understanding financial reports and fundamentals.
- Aspire for More Mastermind – A mastermind event in Dallas, Texas, focused on financial and business growth.
- Presenter: Eddie Wilson– An expert in underwriting investments with extensive experience in multifamily real estate and business operations.