So many Ugandans are just opening up to the idea of investing in a company as a shareholder and then waiting for returns.
I have run two crowd funding drives to raise money to start up a business with the latest being gokafoods.Many kept ask so am I supposed to work in the business? When do I get my returns? How much am I going to be paid monthly as returns? These and many other questions that came in clearly showed me that most of us don’t know how this works.

Once you decide to invest in company it means your buying ownership into the business and doing so makes you an owner in the business. This entitles you to any proceeds that may come from the business. Selling shares/equity is one of the ways companies raise money to be able to operate as planned and generate money as planned.Ofcourse the business idea or plan will have generator who becomes the vision bearer/captain of the ship. Other investors simply buy into his/her dream if they believe in it based on the facts and promises/prospects he/she has show them.

The reality is not every one who gets to invest automatically gets to work in the busines. Most of them are usually like silent owners in the background watching what is happening and making sure the originators of the idea don’t deviate from the plan without explanation or reason. When the business starts or if it’s an already existing business it will have its management in place as part of the money collected is usually budgeted for this. Usually these are hired people tasked with the duty of bringing the vision/idea to life/fruition. They work with the idea originators to achieve this in order to deliver the results required of the business.

Returns in a business are not given monthly unless the money was classified as a loan with monthly payment terms in which this becomes whole different thing. If the money was equity then the investors get to wait till the business starts making profits because what investors share in are profits.What remains after all company expenses have been covered including taxes. This could take time and in the business plan the anticipated time is usually predicted. It could be a year, 2 years, 3 years,5 years, 10 years or even more based on the scale of investment and plan to generate revenue out of it. So investors have to wait until that time when the business breaks even.

However in the process the business has to follow the plan. Make sure everything is going by the book. Investors have to be kept in the loop regularly and in most cases it’s every 3-4 months. Investors can elect a board of say 5 members who seat say once a month and are tasked with seeing to it thay interests of investors are preserved/protected. Management should send investors/shareholders a report of how the business is running.A detailed report that shows what management is doing, how much money is being spent and how much is being made. The investors need to know whether the business is making money or losing money and based on this they can decide whether management is doing a good job or not and if they deem the job management is doing to be bad then they can move to do away with the management in order to save/protect their investment and get management that will perform as planned.

Being an investors doesn’t mean you get to be directly involved in the day to day running of the business.The business is run on structures implemented by management. Like I said it takes time to for any business to start making money so if one is to invest then they should invest money they won’t be needing the next month or so because they failed to pay rent. Investors can only take money out of the business through getting dividends or selling their share in the business which share appreciates over time as the business grows.. If for example you invested 1M by the time you plan to sell the value of your share maybe have increased to 10M, 50M, 100M or even more based on how great the business is doing.

If you have 10% shares in the business, if the business makes 100M is sold for 100M for example then your entitled to 10M right away and the more money the business makes the bigger that 10% represents. These dividends are paid at the end of the year when the business closes the financial year. Some times investors can agree not to take out this money and rather plough it back to even grow the business more. If the originator of the idea/captain of the ship is deemed to be leading them a stray the investors can generate consensus to rid him/her of her/his position at the helm like Apple did with Steve Jobs at some point and they become a normal sharehokder too like every one else.

If you have 10% shares in the business, if the business makes 100M is sold for 100M for example then your entitled to 10M right away and the more money the business makes the bigger that 10% represents. These dividends are paid at the end of the year when the business closes the financial year. Some times investors can agree not to take out this money and rather plough it back to even grow the business more. If the originator of the idea/captain of the ship is deemed to be leading them a stray the investors can generate consensus to rid him/her of her/his position at the helm like Apple did with Steve Jobs at some point and they become a normal sharehokder too like every one else.

So as you look to invest in shares of different companies start ups or established that’s what you should have at the back of your mind. Established companies have expensive stock because they really don’t need your money and the risks are minimal. Investing in starts up gets you much stock because they need that money and the risk is much higher due to the high level of unknowns. Investing in businesses is a game of risk but you have to calculate your risks well. In Europe and America many to do this and they’ll invest in over 5 ventures. 1 will turn out wildly successful, 2 will do fair and the other 2 will fail. The one that will do well say apple will return all the money you spent and even more.
People who bought stock in Apple 15 years ago at $1k now have their stock being reportedly worth $30M. This means if they decided to sell now they’d get a payout of $30M but if they chose to keep they still get their annual dividend cheque of say $100k as the stock keeps growing in value. So equity investment is a game of taking calculated risk and patience. Next time I’ll tell you how to identify nice ideas for investment.
Jaluum Herberts Luwizza is a Speaker,Writer, Columnist with the C.E.O Magazine and Contributor with the Nile Post.He is also a Business Consultant with YOUNG TREP East Africa’s No.1 Business Management and Consultancy firm that helps people start and grow profitable businesses.
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