Running your own business comes with a huge responsibility. You will need to make sure that you are prepared for all events, in your personal and professional life. You have to make the best decisions today to enjoy the fruits of your investment tomorrow. Investment mistakes can cost you your life savings, and your business, too. If you would like to avoid putting your money in risky funds, or not getting enough return, read our below list of the most common great investment mistakes business owners make.
Not Separating Your Business and Personal Accounts
You need to have clear boundaries between your business and your personal accounts, or you might end up spending your own money to buy equipment for your company, or getting a car for your wife and writing it off as an expense. The main problem with this practice is that it makes it impossible for you to see clearly about your business and personal financial situation, so you cannot plan ahead. You need to invest your personal money for your family’s use, and your business assets to improve your productivity.
Some new entrepreneurs go to a trade show, see the latest shiny tool or machine, and jump head first in, without doing the research. Investing in a new technology that you don’t know can increase your business risks. Make sure that you consider different options when investing in your business, and choose the tools, equipment, and software that delivers the best results at the most cost-effective way.
Flashy Cars and Luxury when You Cannot Afford It
You might say to yourself that you need to present yourself as a professional, therefore, you need a large luxury car to impress your customers and business partners. The question, however, is whether you are at a stage in your business when you can afford this luxury purchase. If you get stuck with your company finances and you need to sell the car, you will inevitably lose money, as it would have lost its value faster than you paid your debt.
You might decide to make investments or take out credit to expand based on your over-optimistic business outlook. This is dangerous, as if your plans do not work out as you expected, you will end up in debt and financial trouble. Always play safe, and build a plan that is founded on certain income, instead of your hopes and dreams. Take a step back every now and then, and revise your financial plans.
Every business needs assets and savings it can use in case disaster strikes. What if one of your largest customers decides to leave you for the competition, or simply goes out of business? What would you do if your overseas customers disappeared, or if there was a hue foreign exchange market fluctuation, and you couldn’t adjust your prices? You need to have assets you can dispose of, or savings that you can use to get you through difficult times.
Lack of Tax Planning
If you don’t think about your future taxes, you will be up for a surprise when you get your bill. You need to create a budget that includes your future taxes, health insurance, pension contributions, and other important regular expenses. If you cannot pay your taxes, you can face huge penalties, or even have your business license withdrawn. Put some money aside to pay your taxes, or create a payment plan, so you don’t have to go out of business because of the lack of financial planning.
Not Budgeting for Rainy Days
Your budget should always include some extra money in case you need to pay out more or your bills increase. What if you have five employees, and need to get one more office staff? You will have to pay their salary, as well as the taxes and insurance. At least ten percent of your investment budget should be allocated for price increases, as well as unexpected costs, so your cash flow is not compromised.
Thinking Short Term
You might think that your business is doing fine now, and the situation will stay the same forever. This mindset can be dangerous. You need to invest in continuous improvement, to stay on top of your game, and offer more for your customers than your competition. Today’s markets, including customer behavior and expectations are changing faster than ever, so you have to invest into future technologies, and improvement related to communication, collaboration, and customer relationship management.
Not Consulting with Finance Professionals
You cannot know it all, when it comes to investments and financial planning. You should talk to a business professional who can explain you the basics of planning for the future, investing in research and development, and making the most out of your assets. You might want to put your investments into a higher return fund, to afford future equipment upgrades and property purchases. You might not know anything about Small Cap Power, and it can be the perfect solution for your short term and long term cash flow issues.
Putting All Your Eggs In One Basket
Specializing on one customer segments and getting your investment in one fund might not be the right option after all. You will need to make sure that some of your investments are accessible immediately, while others work hard to generate interest. Likewise, you don’t want to rely on one customer to deliver over 80 percent of your revenues. Instead, make sure you have different options and interest in growth markets that can replace existing revenue sources when you face difficulties.
When you think about your business investments, you have to consider your long term goals and mission. Avoid risks, and talk to a professional who can help you decide on your financial priorities. If you are not an expert in financial planning, it might be a good idea to talk to someone who is, and get their insight. Make your money work for you, and prepare for all events.