Sources of Business Risk & Ways to Mitigate the Risks

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Small business is a gamble.
Small business is a gamble. (Image: property risk image by Philip Date from Fotolia.com)

Small business is risky. Starting a small business involves investing considerable time and energy in a venture whose outcome is uncertain. It often requires continuing investment before an outcome is clear. Mitigate some small-business risk by researching your concept thoroughly before starting your company, and building a network of mentors and associates willing to provide support. A willingness to learn from mistakes will enable you to weather most business difficulties.

Financial Risk

Financial risk is inevitable when starting a business. It costs money to buy equipment and materials, market your concept, and keep your business operating until it earns a profit. Most small-business owners either invest personal savings or borrow money from a bank, friend or relative to cover start-up expenses. Determine start-up costs and make sure you have sufficient capital. Having too little money can hinder your company from realizing its potential, but having too much money could encourage you to spend more than necessary, incurring debilitating debt.

Personal Risk

Becoming a business owner also involves personal risk. Most independent operators will likely work a grueling schedule, at least at some point in their business careers. This workload can take its toll on personal relationships and also on your emotional well being, especially if you end up neglecting activities that you normally rely on for psychic sustenance, such as exercise or travel. Mitigate these risks by making it a priority to communicate with your partner about the ways your business is impacting your relationship, and also prioritize taking time to recharge your own battery.

Human Resources Risks

Hiring employees introduces a variety of business risks because you must depend on other people to run your company effectively. Payroll can also be a significant business expense, posing additional financial risk. In order to mitigate personnel risks, develop systems that enable your employees to fully understand their job responsibilities. The clearer your expectations, the better the chance that your employees will do their jobs effectively and satisfy your customers. Prepare cash-flow projections that include payroll expenses in order to know how much your company must earn in order to pay your employees and also make a profit.

Business Growth Risk

Growing a business presents a variety of risks. Growth that is too slow can interfere with your potential to earn a profit, while growth that is too rapid can overwhelm your infrastructure and make it difficult for you to maintain quality and keep customers. Mitigate the risks associated with business growth by developing plans for sustainable expansion, and calculating the resources that you will need to grow at a rate your company can handle.

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