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Minimizing Risk for Your Small Business
  • 21 December 2017
  • Daniel Vahab

Minimizing Risk for Your Small Business

How do you minimize risk for your small business? That is a question every small business owner should be asking themselves both before starting out and on a regular basis throughout the business life cycle.

According to The Motley Fool, about 80 percent of new businesses make it past their first year. But nearly half of all businesses fail after five years, and just one-third survive past their tenth year. So, how do you avoid becoming another failed business statistic? Well, in order to survive—and thrive—you need to minimize your business risk. Here are some tried-and-true techniques for doing just that.

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Make sure you are fully capitalized

Capital is essential for both starting and scaling an enterprise. You need it for everything from basic operations, from office supplies, to larger expenses like equipment, payroll, marketing, or real estate. Business ownership isn’t the place to wing it – you may have to secure a loan or raise funds, and preparation is key. Create a realistic, detailed budget that includes projected expenses, and look for capital to help you fill in any shortcomings.

Do your research

As Entrepreneur reports, you should do lots of research in order to determine the specific numbers and thresholds you need to hit to keep your business afloat. This research could involve consulting fellow entrepreneurs who own a similar business, talking to suppliers, joining industry trade associations, hiring a business consultant, or reading guides and articles aimed at start-ups.

Regardless of whether you’re brand new to business ownership, or a seasoned veteran, you may benefit from candid, regular discussions with a business mentor. Local college libraries might also be a good source for valuable educational resources.

Keep a safety net

Go beyond the exact numbers dictated by your budget and ensure you have additional money saved for those "what if" moments. Keep that money in a separate account that you do not touch. You’ll be glad you have it if, for instance, you run out of inventory faster than payments arrive from customers, a natural disaster destroys your storefront, or your (former) accountant makes an error and you need to pay a lot more taxes than anticipated. Any number of things could happen, and it is best to be prepared so that you can react quickly.

Diversify your business model and customers

Just like investing in stock, diversification is a way to hedge against risk in business. Increase your potential market by diversifying. The more industries, locations, products/services, and promotions you offer, the better. Diversity in business can serve as a quasi-insurance policy against the risk of consumer demand shifting from one category of your business to another as trends unexpectedly change.

Be frugal with your time and resources

It’s important to be smart about how you spend and save your company’s money. Even after you have established your business, try to think like a start-up and conserve resources. Small changes can add up. Make sure your printers are set up to automatically print double-sided so that you use less paper. Implement a recycling program. Provide your staff reusable coffee mugs and water bottles to avoid buying disposable cups all of the time. Tips like this not only help save money, they’re beneficial to the environment too.

When it comes to saving time and increasing productivity, there are a lot of tools available. Consider using social media apps to streamline your social marketing efforts, scheduling content in advance. Instead of sending one-off emails to your customers and prospects, leverage email marketing software to automate your campaigns, send out personalized blasts to segmented lists, and track analytics on open and click rates.

As Benjamin Franklin famously said, "The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality." In any business, risk is inevitable. You face it as you start and throughout your full business life cycle. That is why it is critical to do all you can to minimize risk as much as possible. By following the tips above, you can help to alleviate some of your insecurity and gain some peace of mind as you grow your business.

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