Running a business is fraught with risk, which is a result of constant competition, unpredictable economic situations, and rapidly changing customer preferences. To have any chance of succeeding, entrepreneurs need to be well-versed in preparing for and effectively managing emergency events and disruptions.
Here is a general framework to assess and deal with risks that may otherwise overwhelm your startup.
To ensure that your business complies with all the necessary health and safety regulations, you need to formulate contingency plans for accidents. Also, you need to have proper air quality and clean working spaces.
Patents, copyrights, and trademarks are worth investing in if you have intellectual property that may cause damage in your competitor’s hands. Specialists from CFO Strategies LLC have pointed out that small firms need to weigh the cost of getting intellectual property protection against the cost of potential lawsuits.
As an entrepreneur, you need to be on the right side of the government, making sure that you have the necessary insurance, business license, tax filings, and the like.
The Risk from Political Turmoil
Entrepreneurs can be put in a bind by needless bureaucracy, high taxes, a toothless legal system, and massive corruption that plague many places around the world. To mitigate the risk of your company falling prey to something like this, consider setting up your venture in a jurisdiction that values your business and provides you with safety, low taxes, and honest bureaucrats.
Lack of Diversification
If your business is highly dependent on a few clients for most of its revenue, it is a recipe for disaster. You need to consider what you would do if those contracts fell apart, it means that you need to expand your clientele.
Another area where a lack of diversification is an issue is marketing. If you only depend on one marketing channel for getting clients, you could end up taking a massive hit when that channel is no longer viable.
Running Out of Cash
Due to various reasons, such as fluctuating currency values, a slowing economy, plunge in the stock price, your customers shifting to a competitor or refusing to pay, an increase in the price of raw materials and other items., your business may run into major financial trouble. To safeguard yourself, invest in proper budgeting practices. It is also extremely important to maintain a large cash reserve for a rainy day.
As an entrepreneur, you may occasionally have to deal with employees or co-founders who are either a drain on your company resources or are good but want to leave. You need to ensure that these instances do not derail your business.
To do that, you have to prioritize hiring highly skilled employees and retaining them with competitive annual bonuses and hikes. To ensure that your top employees don’t go and work for your competitors, you need to specify that in their contracts. Providing top performers with equity is also a great way to incentivize them to stay. To prevent issues amongst co-founders, it is also a good idea to draw up a founder’s agreement.
Risk is an inevitable part of every business. To be successful as an entrepreneur, you need to have the ability to accept this fact and put in place safeguards to mitigate manageable risks that may arise.