Risk and business tend to go hand in hand. Entrepreneurship is mostly about taking calculated risks, from attempting to find a solution that solves a unique need to trying to survive in uncertain and competitive markets. However, the risk is often worth the award. While certain aspects can’t be controlled, such as market demands and economic situations, other early-stage business risks can be mitigated more easily with a couple of smart and calculated decisions. Here are some ways you can reduce business risks in the beginning stages as well:
Choose a great founding team
When starting a business, your initial success will mostly depend on the knowledge and experience of your founding team. Here, risks could include disagreements between co-founders, unskilled founders, or even the loss of talented founders. To prevent this from happening, aim to work only with individuals you fully trust and know very well. Keep in mind that any knowledge gaps can be minimized by selecting founders with complementary skills, while creating a good founders’ agreement can aid in reducing legal disputes. The probability of strong team members leaving can also be reduced with good equity that grows over time, thus being dependent on the success of your company.
Make sure you’re compliant
Companies that get in trouble with the law will often face hefty fines or potential prosecution. To prevent this from happening, make sure your business complies with all the laws and regulations that directly affect your industry, such as business licenses, tax compliance, corporate governance, employment laws, etc. Hiring experienced professionals such as corporate lawyers and accountants will be the best course of action for ensuring legal compliance. Investing in a detailed safety program can also be of great help for protecting employees and avoiding lawsuits, while establishing controlled and standardized operating processes will be vital for minimizing the risks of human error and inadequate procedures.
Pay attention to your finances
There are a number of different financial risks you may encounter in business. In many cases, they can be solved with proper financing, delivering value for cash, reducing expenses, maintaining a steady cash flow, considering several streams of income, etc. However, some financial risks are often overlooked but can come with even more problems. For instance, you may have taken out a business credit card or a loan to finance your venture, and you hadn’t even realized that useless junk insurance has also been sold to you along with these products. Fortunately, you can decide to refund junk insurance and get back the money you’ve spent unknowingly. But in the future, minimize risks by reading each document carefully before signing.
Hire your employees carefully
When your business expands and the time comes to hire employees, remember that they could contribute to your overall success as well. In fact, the earlier you hire a person, the more important they will be to the growth and development of your company. So, aim to choose your candidates carefully. Several interviews should be held with the founding team to gather input and feedback. Job applicants should pass practice tests to prove their knowledge and skills, and a trial period should be considered as a method of confirming a candidate’s fit. Prioritize skilled, experienced, and hardworking employees even if there are some knowledge gaps; further training can always be provided.
Make an effort to diversify
One of the greatest risks in business is relying on one single factor, regardless of its nature. This is often overlooked in the beginning stages of running a business, but it can come with big risks for entrepreneurs. That is why it’s recommended to avoid concentrating on one aspect (or a small group) when starting a company. For example, you may be financially dependent on only a couple of large clients as a small business. While this might seem normal, such client concentration can be detrimental to your company in case a big contract ever falls apart. Mitigate this by diversifying your client and income streams.
Consider any political factors
Depending on your area, you might be facing unique outside risks that directly affect your business. For instance, you could have started a venture in a country with a weak judicial system, political uncertainty, a high corruption rate, or particularly high taxes. All of these factors can make it more challenging to run and grow your business. You will likely spend more time and effort dealing with these inefficiencies than delivering genuine value. To reduce some of these risks, you might want to consider moving to a more business-friendly area with lower taxes, no corruption, higher political stability, and a strong rule of law.
When it comes to business, certain risks are truly inevitable. But for those that can be mitigated, make an effort to reduce common business risks in the beginning stages and ensure your company’s success.