Every investor experiences failure at some point, but if you know the warning signs of a failing business you can reduce the risk of losing your money. Here are the things to look for.
No matter how many precautions you take, not every investment that you make is going to work out in your favor. Thus, it's important that you're able to realize when an investment is one of the duds, and know how and when to back out before you lose everything. Having an exit strategy when you go into the investment will certainly help in this process, but before it even gets started, you have to be aware of the investment's true state and leave. In order to do that, you should look for these five signs of a failing investment.
The Investment Isn't Bringing In Positive Cash Flow
This should be a no-brainer, but one of the first signs of a failing business or investment is the lack of a positive cash flow. It should be said that a negative cash flow for a just few months doesn't mean that the investment is a failure, as many industries have slow seasons and startups can take a few months to get on their feet, however, a prolonged period of negative cash flow is definitely a warning sign about your investment.
So, before investing your hard earned money into an early-stage startup or other unproven investment opportunity, be sure to analyze the financial records or growth of the business and make sure that it is trending upwards. As an investor, you're not in the business of losing money; so, make sure that you're putting your capital into something that shows signs of growth and a promising future.
Review Stock Prices Over the Past 12 Months
If a company's stock prices continue to plummet, you should liquidate yourself of that stock before it falls any further. Negative trends that continue for that long are bound to continue further into the future, so you need to cut your losses while you are still somewhat ahead if you spy this pattern in motion.
Always keep your eyes on your investments and watch the trends that are happening in the marketplace so that you don't find out before it's too late. You should never expect to invest in a company and then just sit back and reap financial rewards. Stay observant and try to make informed moves based on how your investment, as well as the company that you've invested in is performing.
The Yield Is No Longer Competitive With The Current Market
If your investment isn't yielding a competitive return, then it's time to cash in and get rid of that investment. Having money in a company or a stock when it's not yielding a competitive return means that you're tying up money that could be utilized in a more profitable part of your investment portfolio.
Know what your investment is worth, be it in a company, a stock, or a bond, and make sure that you're getting a solid return from your investment. Look to the performance of similar, or competing companies or stocks and compare your return to what you would be getting elsewhere.
The Business You've Invested In Is Hemorrhaging Employees
If people can't stick around a business for a paycheck, what does that say about the business itself? A business that's not able to hold on to talent is a business that's probably being mismanaged, and even if it's not losing revenue, mismanagement will certainly lead to failure in the future. If you notice lots of unexpected change or employees abandoning ship, then it's probably time that you do the same and get out while you still can before you lose out.
Nobody Cares About The Business
If customers, employees, and management have a lack of passion for a company, then the business is likely going nowhere, and heading there fast. To be competitive in today's market, startup founders and their employees must be dedicated to the growth and success of their business and have a passion that will make sure that they see it through from start to finish.
If you get the feeling that a startup team is all in, then they probably are and the company could turn out to be a great investment; if not, then it's time to look elsewhere.
In today's business world, nearly 75% of all new companies fail--an undeniably daunting statistic for potential investors. However, as long as you identify the early warning signs of failure, you can make sure to dodge poor investment opportunities and dying businesses to protect your hard earned money and invest only in the businesses that will reward you handsomely for your investment.
