5 Ways Bad Investments Can Hurt Your Business
In the business world, a word investment usually has a predominantly positive connotation. Unfortunately, this may be a bit misleading and convince first-time entrepreneurs that there’s no such thing as a bad investment.
How Bad Investment Hurts Business?
The reality is completely opposite to this and there are, of course, more than a couple of ways in which your business can be hurt by a potentially bad investment. In order to avoid this, here are five bad investment ideas that can definitely hurt your business in the long run and, sometimes, even in the short run.
1. Premature diversification
One of the things that a lot of business owners do wrong is to start thinking about the diversification of their company too soon. Imagine a scenario where you start a small business, where all employees are assigned to deal with a core task, while all the other functions are outsourced to professional agencies.
So, what do you do when your business starts growing? Do you immediately hire an in-house HR or IT team? Do you start handling your digital marketing on your own or do you reinvest in your sales team? The latter is clearly a far superior choice, however, it is sadly not a choice that all first-time entrepreneurs will make.
2. Not doing your research
In order to diversify your portfolio, you might feel inclined to split your profit into several categories. Some of this money needs to be reinvested into your business so that it keeps moving forward. Some of it should be spent on luxuries and things you’ve always wanted to have/try so that you can be reminded of what all of this is about.
Then, some of the money needs to be put in stocks or commodities (gold, silver, platinum or diamonds) in order to protect and grow your assets in the most efficient manner. The problem with this lies in the fact that there are so many scams and hoaxes out there that you risk losing your investment money every step of the way.
Luckily there are some steps of precaution that you can make in order to mitigate this risk a bit. For instance, if you aim to invest in diamonds, you need to ensure that they come with a GIA certificate. Other potential investments may have different safety requirements.
3. Penny stocks
While it is true that there are some who made a fortune on penny stocks, this is one of the most unreliable stock investments that you can possibly make. The field is highly volatile and requires an insane amount of micro-management, which (even if you do dedicate all your time and effort to it), doesn’t have to yield a positive result.
Therefore, penny stocks are probably best left avoided in favor of traditional stock investment. Either way, as a businessperson, you need to start avoiding gamble-like investments as much as you can, even if the potential gain/loss is not that great.
4. Not creating a cash buffer
A money that you invest can potentially grow, thus yielding a return. A money that you just put into a savings account will not do the same, which is why a lot of inexperienced entrepreneurs interpret the latter as a clearly inferior option.
On the other hand, if you fail to create a cash buffer, you’ll be forced to make a difficult choice next time you face a cash crisis. In that scenario, you would have to apply for a new loan, sell an invoice, sell an asset or redirect funds that you intended to use elsewhere. It goes without saying that all of these ideas tend to be inferior to having an emergency fund.
5. Aiming for rewards
At the very end, this is a bit of a controversial issue, seeing as how it implies that you’re spending money in order to generate credit card points, which should be quite absurd. You see, excessive spending will always lead you towards a disastrous end, no matter the circumstances.
These points are just side-effects that are supposed to mitigate the risk and lower the material damage of spending, they’re not a wise investment goal on their own. Sure, you shouldn’t disregard them altogether, yet, they should never be a primary motivation for your spending.
It all comes down to the fact that you have to be smart about what you do with your profit, seeing as how the ability to make it is only a first step on a path towards becoming a successful business.
By keeping track of these five important areas, you’ll have a much easier job at ensuring that this remains so. Therefore, keep in mind that doing everything in-house often tends to be overrated and that being too greedy (investing everything that you earn) doesn’t always go your way.
In other words, research, careful planning and moderation are your three closest allies in the world of investment.