If you have landed some unexpected money from an inheritance or a lotto ticket if you are lucky enough or maybe you have been saving and now you have a sizeable nest egg, but now you are not sure what to do with the money and what the best decision will be. Then a friend or a family member starts talking to you about a new business venture and you are tempted, but will it be a smart investment?
Within 24 months about 50% of all start up businesses in South Africa fail due to the inexperience and the inability of their owners. The key to the success of a new business venture is to make smart financial decisions and to safeguard the money invested.
If you are thinking about investing in a new business, then here are six potential pitfalls that you need to be aware of according African Bank.
Guesstimation is Not Budgeting
When you are creating a budget for your business and your personal expenses there is no room for guesstimations. You will need to be as realistic as possible as your personal living expenses will also be high. You will not be able to survive on a skeleton budget. You will need to stick to your budget and you are able to adjust it as the month progresses.
You Try to Diversify Too Soon
If you are making a profit and not sure where to invest it then why not in your own business? A mistake that many new business owners make is trying to branch out and diversify with their profits instead of keeping the money in their own business. It is best to focus on your business and use your profits to help grow your business.
Placing Focus in the Wrong Places
Your main priority should be revenue generation and everything else like your website, marketing material etc. can wait. You should be focusing on the things that will drive revenue. Having a positive cash flow will help you to make decisions and you will be in the good books of your creditors.
If It Isn’t Working, then Move On
If something isn’t working, then you should move on. If you keep backing something that isn’t working, then you will just end up draining your resources and setting your business back. The sooner that you are able to make the right decisions and focus on what is working then the better it is.
Don’t Ignore Reality
A good proportion of all start-ups don’t make it and you may find that yours isn’t working. You shouldn’t ignore this and rather deal with the reality that you may have to get a job again. If this is what you have to do, then just do it no matter what others may think of your failed venture.
Recognise Investment Opportunities
Your business can sink with just one bad investment. If you are not sure what to invest in, then seek financial advice and also look for the best interest rates.
Article Source: https://businesstech.co.za/news/business/327433/6-pitfalls-when-putting-your-life-savings-into-a-new-business/