AVOID MAKING MISTAKES IN SMALL BUSINESS
- by learning from the mistakes others made.
This way you do not have to carry the costs of the mistakes. Have a look at some mistakes other business owners make and avoid making it yourself.
1. Lots of business owners adopt the strategy of ploughing all the profits they make back into their businesses. If you start a business or buy one, this strategy might be necessary at the beginning in order to grow the business, but some or other time you have to review your strategy. If you carry on ploughing all your profits back into your business you are putting all your eggs into one basket. If your business goes insolvent, you will loose everything you have worked for until then. This might happen at a time of your life when you are too old or too ill to start from all over again.
If, however, you take a percentage, say 20% of the profit out of the business and invest it elsewhere, you are diversifying your risk of losing everything. At a rate of 20% per annum you will, within 5 years, have one year’s profit outside the business. If you invest this wisely you will be building on a nest egg to fall back on, on a rainy day, i.e. when your business goes through a difficult period or if you loose your business through insolvency.
2. Lots of business owners do exactly what is described above, but then they choose the wrong investment vehicle. If you invest in a very expensive house for you and your family to live in, you might have to sell that house if you need the capital tied up in it. The same goes for luxury cars or other lifestyle assets.
Therefore, the question you should ask yourself is the following: How much capital will I have available outside my business if I subtract the value of my house, cars and other lifestyle assets from my total nett assets outside my business? If you don’t feel comfortable with the answer you get, do something about it.
That something should be to engage the services of a professional investment adviser to help you plan and implement an investment strategy.