Many people consider becoming entrepreneurs for varied reasons. Before venturing into business it is important to be aware of the associated risks. This will definitely help improve the chances of succeeding. As in life, in business also, entrepreneurs need to take risks. The challenge is to anticipate pro-actively all possible risks to emerge as financially successful, reputed, efficient and long lasting business venture.
These are some helpful suggestions to identify and mitigate different aspects of business risk.
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Evaluate how good your business idea is – There’s no point of investing time, effort and money in something which will fail. Spend an adequate amount of time beforehand studying the current customer demand for your product/service, the competition you will be facing and what tangible and different benefits you can offer for attracting and retaining customers. Pertinent questions to ask yourself include whether you have adequate financial and human resources to market your product/service effectively. Another question to ask yourself is, can you afford the requisite infrastructure?
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Have the right people on your team – A large component of business risk is usually the human resources risk. One vital factor for business success is having loyal and productive employees. Do a thorough background check before hiring anyone. A troublesome employee could jeopardize your business operations. At the office or in the field, work experience matters. You may not have the luxury of having greenhorns who make mistakes or learn through trial and error. Also experienced staff will be productive from day one. Mistakes and wastage of time is not at all desirable or likely to be tolerated by your customers. Sound managerial expertise can be the difference between success and failure, so have competent and reliable managers whether it be the owner or a hired employee.
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Taking no risk is also a risk- Remember, there is practically no business which doesn’t have a risk component. Delaying a decision may mean you have missed a lucrative business opportunity. If you don’t invest time or money or try out something new, you may never know whether the thing works or not. Avoid over analysis as it can lead to policy paralysis. Then you are better off working under someone else to meet your expenses and lifestyle.
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Have a home based and/or web based business to whittle down the financial risk – Most independent ventures carry a huge financial risk. A web based business is usually far cheaper than a physical location. Also it is created faster and can begin small. A home based venture means no extra rental expenditure and travel expenses.
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The risk of future unforeseen developments – Maybe a new technology will come up which will render your product/service obsolete. There is also the risk of government regulation changes. You need a solid business plan which provides for contingencies and adapts to the changing business, technological and political environment.
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Take insurance coverage and draft contracts astutely – If you cannot afford to replace expensive infrastructure such as machinery, high end computers and others, you should have a good insurance policy from a reliable insurance firm. Remember, risk varies according to the prevailing business, political, social, geographical and technological environment. The insurance you take should cover risks pertinent to your business. Legal risk is another critical business risk. Hence any contract you enter into with other parties should clearly mention the terms of termination and the consequences.
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Poor money management – Profit is the bottom line of any business, so it’s imperative to have efficient budgeting with provision for failures. If you are not good at it, get someone whom you trust and has had experience managing business money before. The extra employee salary which needs to be paid will mostly be worth the investment. Carefully monitor expenses, inflows, taxes and other financial items in a systematic and organized manner.
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Have an exit plan in place – It is vital to determine at the beginning itself how much the maximum amount of money and time you are willing to lose before shutting shop in the event of business failure. This will help you cut your losses. You should be clear on how much risk you are willing to take. The situation shouldn’t become so bad that you have to use your personal savings.
It is a good idea to fully utilize your own business experience and consult experts and well wishers in order to better handle business risks.
