The list of things to look at include the overall business strategy of the organisation and what kind of plan they have for the future, which markets are they operating in, and do these reflect the potential for growth.

You do not want to be putting your money into entities which are new entrants into an already mature market. They must have the ability to gain traction and make an impact. A new commercial bank, for example, would find the environment very competitive in the face of the significant and deep presence of the existing major players.

Telecommunications is also quite mature at this point. One should be looking at areas which are not fully exploited and offer growth opportunities, such as certain areas of agriculture. An example of this would be the production of West Indian Sea Island Cotton.

All new businesses must have a business plan and a feasibility study regarding the success of entry into a particular sector.

For an existing business already successful in its area of enterprise, the need for a new business plan may not be necessary. For example, I know a farmer with far more demand for his product than he could possibly hope to supply. He already has a ready market for excess capacity. Expansion for him would be a good idea, as it would not require the kind of feasibility study that very new entrants must pursue.

Determine demand

Determine the possible demand for the product before you invest. As an example of this, I again use agriculture. There appears to be strong demand for ginger and Scotch-bonnet pepper as export crops. So there is demand for the product. A proper strategic plan should contain the total outlay required to produce the crops to satisfy some of the excess demand, and the value that can be extracted as a result of this. Proving that there is a market for the product adds credibility to the project as an investment.

There are other untapped areas which may be ripe for further equity investment. In the area of hospitality, for example, the government is diversifying into sports tourism, health tourism, and expanding its leisure tourism product with the licensing of casino gambling. I think we have exhausted our image as a destination for just sun sea and sand. We must diversify our tourism product. There may be opportunities here.

The business and feasibility plan is critical. It must feature the level of proposed investment, the projected return on investment, and how the investment will be used to generate the return. The plan to deliver the return on investment must be a credible one.

Investors also like to see matching equity. One is not likely to invest in a concern where those managing have nothing to bring to the table. The competence of the management team is also critical in attracting investment.

Email Vernon: jamesvs@jncb.com.

When going into a business with someone, the first thing you would need to do is find a way to evaluate the charter and integrity of the person or persons involved.

Make sure that you can work together. In addition, you must determine that this individual has the expertise to run the business, especially if it is small. He or she must be well qualified or have experience. Some people leave companies where they have worked to do their own thing. This means they have experience.

Once character, integrity and expertise are in place, one can look at the business model and the market. Is there a market to take up the goods and services provided? Is there anybody else in that business sector competing, maybe more efficiently?

Is there efficiency in terms of the production process? Is technology necessary? Is the production process labour intensive? Can you get the skills/inputs which will allow you to compete?

Make sure that you carefully review the barriers to entering the business. Can someone enter and take away your customers tomorrow?

Having answered these questions you can then take a good look at the business plan to see the level of revenue to be generated and if the profit is adequate to make you want to invest.

The company has to make a profit in order for you get a return. What is the return being projected? Is it better then capital appreciation on stocks or another form of investment into which you could put your money?

Look as well at the decision-making process and how you can influence this. When you put equity in, if it is less than 51 per cent, how can you influence the decision-making process? Will you be able to sit on the board or participate in management?

If you prefer to be a silent partner, you will still need to know what your equity is valued in terms of participation and what you are going to get in return. Will your $100,000 give you five per cent of profit or 15 per cent share? There is no hard-and-fast rule and this is negotiable.

Expertise and contribution

In negotiating, you will take into consideration the expertise and contribution of the older partner, which could add to value and permit him a greater proportion of the company than the face value of the operation.

The percentage share in profit must be negotiated. Management may decide that it wants to retain 50 per cent in business to continue growth and restructuring, and out of whatever is distributed, you may get a percentage of that.

If you want to avoid some of the risk with equity, go into a preference share arrangement, which means you would not be the last one to be paid. You have to be paid what you say the conditions were. You have the right to call on profit.

Or, you could just lend the money and ask for payment over five or 10 years. In that way, there is no participation in the business.

You would have to evaluate whether profitability would give you a higher return than stocks or other investments. If it cannot pay you 20 per cent (or whatever return you need) in each year, it may be better to do something else with your money.

Email Wayne: wayne.powell@scotiabank.com