There is always a risk when you start a new business, but there are also many rewards to being a business owner and controlling your own destiny. Many people avoid starting their own businesses because of the risk. But you can start minimizing risk in small business by being prepared and knowing where the landmines are. You don’t have to be overly cautious, just know that a certain amount of risk is to be expected with a new venture.
Look into the future and try to predict what could possibly happen. You can’t predict everything, but cover as much as possible. There are a few things to consider before you open your doors for business.
- Get everything in writing – Even if you are working with your family or best friend, you need to have it in writing. This isn’t to say that they will turn on you, but it will help everyone sleep at night knowing it’s formal. Just the act of writing a contract and putting down on paper what you expect from the arrangement is helpful to clarify who does what. It avoids misunderstandings later. If you stand to lose a large amount of money in the future, then a contract is necessary.
- Make sure you are properly insured – Anticipate what could go wrong and prepare accordingly. You at least need to have general liability insurance and product liability insurance if you sell a product. Disability insurance will cover part of your income should you lose the ability to work.
- Set up the correct business entity from the beginning – Get the advice of a qualified attorney and accountant and do it right to start with. Use separate entities to protect your assets.
- Manage cash flow – It’s easy to underestimate how much you will need. It seems like it will always keep coming in when times are good, but you need to prepare for downturns in the economy, the loss of a key customer, changes in technology or your industry or any other event that could cause your cash flow to dry up. Figure out how much money you have now and how much you would need to have coming in if anything changed. Have a backup plan and make sure to keep at least three to six months of money in the bank just in case you need it.
You can’t eliminate all risk, but if these things are in order you will at least have a good chance of minimizing risk in small business.Filed under: minimizing risk in small business, risk, small business,