As a new business owner, you want to be smart with your money. Making wise business decisions and smart investments can vastly improve your revenue stream, but money can be hard to come by when you first open your doors. That’s why it’s important to know which business investments to avoid.
We asked three business executives, with decades of small business finance experience, to offer investment advice to new entrepreneurs. The trio advises new startups to avoid these investment pitfalls:
1. Stocks and Bonds
Stocks can be appealing. When you buy a stock you become a partial owner of the company. If you invest in the right one, you can make some nice profits. But Tim Shanahan, a financial advisor at Compass Capital Corporation, says startups should stay away from this investment.
“The price volatility of stocks is unacceptable for a company that is burning through cash as it builds its business,” he says.
Bonds, which are considered a safer investment, still aren’t a good fit for a startup, Shanahan says. The problem with both stocks and bonds is that you may not have easy access to cash when you need it.
“It would be dangerous to assume that stocks or bonds would be at a favorable price to liquidate at exactly the time you need it to support your cash burn or to buy an important asset for the business,” he says.
2. Real Estate
Some entrepreneurs dream of starting small and ending up a millionaire, with a mansion on a hill and a private jet fueled and waiting around the clock. To make money quick, some entrepreneurs think real estate could put dreams like this on the fast track, but Jordan Markuson, the CEO of Aqua Health Labs, says it’s not a wise choice.
“Real estate is often viewed as a sexy investment,” he says. “However, if you have started a business and are making a profit then you have found a unique niche you are better at than most anybody else. Real estate requires a lot of time and headaches that are difficult, if not impossible, to account for.”
His advice? Stick to what you know and leave the real estate to others.
3. Flashy Offices
One of the worst investments that a new business owner can make is investing in expensive office space and furniture, says Manny Skevofilax, the CFO of PORTAL Consulting.
“When your business is starting out, your focus should be on driving sales and keeping your overhead as low as possible,” he says. “Investing in expensive office space and pricey office furniture is a surefire way to keep yourself in a constant state of stress and put your business in jeopardy.”
Make sure your company is viable and sustainable before you start to consider office space. Keep in mind, you can always meet clients at coffee shops or look into shared office space in your area.
If you do want to invest, Shanahan says you can invest in money markets or short-term CDs. These “cash-like” investments are fairly safe and allow you to get money fast if you need it.