It doesn’t matter what kind of business you run, there will always be risks involved. Whether you’re worried about financial struggles, safety issues, legal pitfalls, or simply the ability to stay afloat in changing markets, managing risk is part of being an entrepreneur. But how much risk is out there? And what do successful businesses do about it? The most important thing to know is that startups are more affected by risks than established companies, which is why 44 percent of small businesses don’t survive their first 5 years. The real strategy behind minimizing risk is to have a strong business plan from the very start. When business owners underestimate or fail to adequately research the potential for things to go wrong, they’re unprepared for both small and large crises. Here are 5 of the most common risks to almost every business and easy ways to make sure you can manage them.
It may seem like getting sued is more likely to happen to large corporations, but that’s actually far from the truth. Research by Bolt Insurance Agency states that nearly 60 percent of annual lawsuits are filed against businesses making less than $1 million annually. They say that over a third of small business owners has, at the very least, been threatened with legal action. There are many ways to reduce the chance of a lawsuit, including getting everything in writing and following through on customer complaints and feedback. But you may not always be able to avoid them, so finding further information on the right kind of insurance for your industry to protect against personal injury and property damage is essential. And professional liability insurance will pay your court costs whether you win or lose.
It’s not uncommon for businesses to fall victim to the trap of trying to do too much too soon. Running through your capital too quickly is usually the fault of a bad business plan with too many large goals and not enough short-term ones, and where expenses may be underestimated. Estimating revenue, pricing your marketing strategy, and budgeting for staffing and operating expenses can be a tall order, which is why smart businesses hire great professionals. New companies sometimes think hiring an accountant or bookkeeper is extravagant, but it may be the most important decision you can make. You have enough to worry about with everything else that goes into running a business. Getting help for the complicated financial planning involved will actually save you a lot of money down the line.
3. Skipping Diversification
Most companies have a plan for growth, but not all companies have a plan to diversify. When your business expands, the range of products and services you are willing to offer your customers should expand with it, not only because your success will thrive off of new ideas, but also because the markets are constantly changing. Look at America’s most successful business, Apple. Now that the mobile phone industry is becoming more stagnant, where everyone has a cell phone and prices are quickly dropping, how do they stand out? They offer ipads, ipods, and other products that their competitors don’t offer, putting them at the forefront of expansion. You can take that simple idea and use it for almost any industry or size of business. You never know when prices will fall or a certain product will turn out to be a trend or lose public favor. That’s why it’s important not to put all your eggs in one basket the second the can possibly avoid it.
4. Ignoring Warning Signs
Business requires a high level of proactive behavior from its founders, and no matter what kind of problem you are facing, acknowledging it will help you discover the root of where it came from. Often, businesses will gather customer feedback through surveys or other means, but they’ll ignore the negative responses. When your customers are complaining, listening to them matters. When your employees never last beyond a few months, you need to find out why. And when your sales numbers suddenly drop, it’s worth it to put the research into investigating it. Virtually no companies fail without ample warning signs, and if you can take the right action to solve minor crises before they become major ones, you just might ensure your business sticks around for the long haul.
The greater the risk, the greater the reward, isn’t that what they always say? In business, it can be much more complicated than that. Risk management should be a vital part of your business plan, and you should never more ahead with a company unless you have adequate insurance, accurate bookkeeping, and the right team on your side. There’s nothing you can’t face head on with the right preparation.
About the Author: Author Karen Boyarsky is an avid blogger. You can follow her on Twitter @Boyarsky_kareni.