All entrepreneurs need to be prepared to run into risk when starting a business, its just the reality of the game; but according to Vinay Iswar, Co-founder of NexGen, there are certain strategies new business owners can put in place to reduce the risk as much as possible.
“Statistics are clear that more businesses fail than those that survive the first few years. It’s disappointing because often if business owners put enough planning in place beforehand, a lot of the risk could be minimized or avoided all together.”
So how can entrepreneurs reduce the financial risks of a new business? Vinay lists 8 key strategies to put in place that could help reduce the financial risks if you’re starting a new business.
Develop a Solid Plan
Before you jump in with both feet, you need to know how much time and capital you are going to be investing in your new business. In addition, market research should be done. This gives you an idea of whether your new business has a chance at success or ends in failure landing you in the poorhouse.
“One of the most important steps is to have a solid business plan in place. And if you’re really serious get a business coach to hold you accountable to it monthly.”
Perform Quality Control Tests
You should implement customer service reviews of your products or services before offering them on a wide scale. Have a test group or beta test so you can improve them before your real launch. This will give you a greater chance of success in your venture.
“Imagine launching a product in to the market only to find it needs major work in order to be a viable product, this is an extremely costly error and could be the end of the business before its even begun!”
Keep Good Records
Establish a record keeping system that works from the very beginning of your new enterprise. If you create a filing system and keep up with paper work, it can save you both time and money when it’s time to pay your bills or file your taxes.
If you must start out with a business loan, make it as low as you can comfortably manage while still providing enough capital and cushion to ensure success.
That may sound vague, but the amount you need to borrow depends on your own unique financial situation and what type of business you are starting.
“To reduce your financial risk, only take out a loan if you need to, and try to keep it as low as you can. If it is possible to fund your business without loans, that would be ideal to reduce your financial risks.”
Keep Accounts Receivable Low
“Your success or failure depends on the ability to bring the money into your cash flow.”
In order to stay in business, you need to collect on whatever product or service you are selling. Keep track of your accounts receivable and make sure your customers are paying invoices on time.
Whenever possible, have income from more than one source. If your business doesn’t make it, having a backup plan to keep you out of bankruptcy is good business sense.
Purchase insurance against death, disaster, and any other thing you feel could potentially jeopardize your business. Although it will cost you some money to buy insurance, the peace of mind it brings is well worth the cost if it protects you from losing everything.
Save as much money as you can. Build up some cushion as extra “insurance” in case disaster befalls your business and you have to close shop. This means you may need to focus on improving your personal finances and having your own personal emergency fund before you start a business.
As an entrepreneur, you can’t do anything about the number of new businesses that fail each year. Nor can you 100% guarantee that your own success will succeed. However, you can take steps to reduce the financial risks of your new business, giving it a greater chance success.