As a business owner, business risk is inevitable. All the forecasting in the world won’t protect your business from every potential pitfall. However, being prepared will help you prevent or mitigate most of them. First, you must identify the risks to your business.
Take a good look at yourself. How you approach your business will determine how your business handles potential risks. Be strong willed, yet flexible. Seek out those whose opinions you respect and successful entrepreneurs for advice.
Conduct a market analysis. Analyze both successful and unsuccessful businesses that are similar to yours or that sell similar products or services. Doing so will give you an idea of what to avoid and what to implement in your own business. Be honest with yourself. Be sure that your product or service can fulfill a need. Perform a SWOT (strengths, weaknesses, opportunities and threats) analysis (see Resources).
Create a business plan that includes your goals, obstacles, financial forecasts, advertising methods and management personnel, including the latter's strengths and weaknesses. Create balance sheets and profit and loss statements that detail your assets and liabilities. Always be looking for ways to reduce your liabilities. Understand all of the costs involved in starting your business.
Sit down with your management team to discuss potential risks. Determine the extent to which seasonal issues will affect your business. Determine how you will prevent information technology (IT)- related risks such as computer failures and loss of data. Determine how you will protect Human Resources information such as payroll and private data. Create a safe working environment.
Reduce your risk by determining what type of insurance you will need. If you have a company car, consider purchasing commercial auto insurance. You will likely need to purchase liability and worker’s compensation insurance.
Establish strong relationships with your suppliers and potential lenders. Demonstrate an ability to pay on time and be consistent. Suppliers that trust you will be much more likely to let you create the terms of your wholesale purchases (reducing the risk of over-purchasing).
Have an exit strategy. Know when to call it quits by deciding early on what factors will determine when it’s time to give it up. Also don’t be afraid to abandon a product or service that isn’t doing as well as you’d hoped.