Tips to Minimize Risk When Starting a Small Business
There is almost always a certain amount of risk involved with starting a small business. According to the Small Business Association (SBA), more then half of new small businesses will close down within five years. Underlying these sobering statistics is the unspoken financial turmoil, ruined credit, strained relationships, and personal stress that can accompany a business failure. Taking steps to minimize the risk inherent in starting up a new company is thus good business practice that, when done correctly, can save a tremendous amount of headache and heartache down the road.
To that end, here are five essential tips to follow that will help minimize the risk of starting a small business.
1. First define your unique risks. Before you start your business, or as soon as possible, take out a piece of paper (you can do this electronically, but taking time to write it out will make it more real to you) and make a list of all the possible risks of starting a business in order of priority as you see them now. Why is this important? Because it will give you perspective, and it will help to focus on those risk areas that you are already aware of.
2. Create strategies to minimize the above risks. Now that you have identified some of the risks involved with starting your venture, develop a plan to help minimize them. Here are a few examples:
- To protect your personal assets:Avoid signing personal guarantees on any of your business’ debt- especially if you are running a sole proprietorship or partnership. Also, make sure to consider taking out property and liability insurance policies.
- To help ensure that you have enough income to live on: If you are starting a new business chances are you will not be generating enough revenue to adequately pay yourself at the beginning. You also will have to cover startup expenses. To help minimize this risk, you can maintain another income stream on the side (or alternatively, keep your day job and run your new business on the side, until the business is more profitable). You could also wait to start the business until you have saved up enough money to help cover living expenses at the beginning, or you could take out a small loan for this purpose.
- To protect your work-life balance: If you are married, make sure that you check in with your spouse and other family members about starting a new business. Running a business typically takes more time and energy than working for an employer, and it can involve odd hours as well. This can put a strain on relationships. If you are afraid of getting too wrapped up in your business, then create some natural separations, such as not running it from your home, and if you do then trying to separate your work area as much as possible from your living quarters. You can also enlist the help of family and friends to keep you from overdoing it in your work schedule.
3. Make sure the business is a good fit for you. What experience, training, skills, or knowledge do you possess that can be used to run this business? Make an effort to enter into an industry and chose a business model that fits you and your unique strengths and qualities. Additionally, if you are lacking in industry or business management know-how, you could enter into a business partnership with others who have it. Moreover, make sure your business idea fits your personality. You can not run a restaurant if you do not like food, and you will have a hard time selling your services if you shy away from social situations. Finally, do you have the available time and commitment needed to start your own business?
4. Make sure you know how to run a business. Have you received any formal business management, business financing, or marketing training? If not, is it vital that you learn the basics of owning and operating your own company. There are numerous free business how-to articles, webinars, and tutorials available online, via the SBA or SCORE, for example that can help fill in this information gap. Moreover, it is vital that you get a mentor. Either ask someone you know to help you, hire someone, or consider tapping the resources of groups such as SCORE and and Micro Mentor which provide free business consulting and mentoring services.
5. Make sure you have done your research. Countless small businesses disappear into oblivion because their owners fail to invest adequate time and money in market research, product development, and business planning. They are thus out of touch with their target market and are unable to establish a niche nor respond to changes in consumer attitudes. Those who are unsuccessful as small business owners also fail to adequately assess their competition.
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There is almost always a certain amount of risk involved with starting a small business. According to the Small Business Association (SBA), more then half of new small businesses will close down within five years. Underlying these sobering statistics is the unspoken financial turmoil, ruined credit, strained relationships, and personal stress that can accompany a…