With so many new companies launching every day, it’s becoming increasingly difficult to be noticed and stay in business.
What makes the situation even harder are numerous internal and external risks that potentially could put your company out of business before you’ve even had the chance to succeed!
Here are some tips on minimizing business risks to ensure your success in the long run:
1. Analyze the Risks Around You
Categorize your risks based on impact and probability. You need a way to prioritize your risks, or you’ll get overwhelmed.
If you run a service-based company, loss of reputation is probably a greater risk than financial loss because it could cripple your ability to perform day-to-day activities.
On the other hand, if you have inventory that’s prone to spoilage or theft, that might be higher up on your list.
In general, look for ways to protect yourself from unexpected costs and avoid situations where a single mistake can cost you thousands (or even millions) of dollars. Investing in technology is a great idea.
For example, companies use virtual business phones for easy communication with clients. This not only costs less but allows easy access to all employees, no matter where they are working from.
2. Purchase Insurance
A crucial component of any business plan is insurance. You can’t predict when accidents will happen, so it’s important to have proper coverage before your company takes off.
If you’re thinking about getting a commercial policy, don’t hesitate: commercial insurance is more affordable for businesses with a steady cash flow and consistent year-on-year growth than many think.
For example, if you are looking at purchasing $1 million worth of general liability insurance (which covers bodily injury or property damage), expect to pay anywhere from $2,000-$5,000 per year, depending on your industry. However, if your company has been around for 10 years and has an annual revenue stream of $10 million or more, that same coverage might only cost $1,500 per year.
The problem is that many new businesses skip getting insurance as a way to keep costs down. However, it is important to think of insurance as an investment that will reap benefits in the long run.
3. Raising Capital
You may need additional funding to grow your business.
Whether you’re looking for an angel investor or a loan from a financial institution, you’ll have more luck getting money if you know how much your startup will likely make and how much you’ll likely need.
To secure financing, it helps to be able to quantify these things before approaching investors. If you don’t have that information yet, start tracking your expenses now so that when you do approach potential investors, you can give them accurate projections.
And remember: when raising capital for your business, don’t promise returns that seem too good to be true—they probably are.
4. Re-Examine Your Business Model
Any successful business model will fall apart if its creators don’t continue to innovate, monitor, and respond to their customers and competitors.
As your startup grows, it is important for you and your team members to constantly evaluate whether your initial plan still works as well as it did when you first set out. If adjustments need to be made, then make them, to ensure you retain your clientele.
As long as you have a solid understanding of what makes your company tick, you should feel confident about making changes that will ultimately help it grow.
5. Keep an Emergency Fund
When was the last time you lost your job, had an unexpected medical expense, or your car broke down? All these emergencies can add up very quickly and leave you in ruin financially.
It’s, therefore, crucial to maintain an emergency fund that can cover at least three months of expenses. These savings allow you to bridge any financial gaps without having to take on additional debt—which might make it even harder for you to dig yourself out of your situation.
In business terms, an emergency fund can be a set amount of cash to help improve liquidity. This can be used in unpredicted situations such as an increase in product demand or damage to work equipment.
Some businesses may also keep buffer inventory stock, i.e., an extra amount of inventory set aside each month to ensure that any unpredictable increase in demand is met promptly. However, this model only works for businesses that create goods that have a long expiry date.
6. Be Generous With Employees
Minimizing risk means reducing employee turnover. Your employees are your asset because they play a major role in the growth of your company. Thus, it is important to keep them happy.
A good way to do this is to offer them a stake in your company. Give them stock options or encourage them to buy into your company with a startup loan, which gives them loans at below-market interest rates.
When an employee feels that you care about their well-being, they are likely to reciprocate this behavior by investing effort to ensure the company’s success.
Startups can use these tools not only for motivation but also as ways of making sure that they don’t lose critical talent in the future.
If an employee leaves your company, they have to repay any money received from a startup loan—which means if they leave for another job, there will be financial implications involved.
With that being said, offer enough employee benefits to retain your best workers, but don’t spend more than your budget can handle. Here are some effective employee benefits that you can offer:
- Daycare at the workplace
- Free medical insurance
- Leave for important cultural holidays
- Parental leave
- A professional therapist to focus on employee mental health and personal issues
Most of these options won’t even cost you much; for example, company medical insurance policies are very cost-friendly as you’re buying in bulk. Similarly, hiring a therapist can help improve employee morale and productivity, thus, benefitting your business as a result.
7. Have Good Vendor Relationships
Good relationships with vendors are some of your most important responsibilities as a small-business owner. Vendors are more than just suppliers—they also work hand in hand with you to build your brand and reputation, assist with marketing, and increase sales.
They’re an integral part of your team. To get good service from vendors, be friendly and courteous when dealing with them, but don’t be afraid to ask for what you need or want; if they can’t deliver on something, find someone who can.
8. Manage Work/Life Balance
To be successful in a growing company, your top priority should be managing your work/life balance. You can’t give 110% at work and expect to still have a life outside of it—and you certainly can’t expect family and friends to put up with being last on your list every single day of your life.
When priorities are not aligned, things suffer. Work hard, but be sure to enjoy life. This will ensure that your mental health does not suffer, thus, leading to maximum workplace productivity.
9. Consider Outsourcing
Although most activities can be handled within the company, hiring a professional to complete them will usually result in superior results at a lesser cost.
Many entrepreneurs, however, are hesitant to hire experts because they are concerned about spending their limited starting funds.
The truth is that jobs handled by unqualified personnel are a huge concern for new businesses since they jeopardize critical customers and can lead to poor judgments with long-term ramifications.
To reduce the danger of defective products or costly blunders, specialized duties including law, accounting, and technology should be outsourced to certified professionals.
We see examples of even the most established firms carrying out this practice. Apple Inc. has the resources to do everything in-house, but the trillion-dollar tech giant chooses to outsource screens to Samsung.
This is because Samsung does it better, and it costs Apple less to purchase screens rather than investing in R&D and resources to come up with the same product.
10. Cut Down Unnecessary Overhead
If you’re getting started or still in startup mode, cut down on every extra expense. Maybe that means working from your garage or renting out a cheap, co-working desk instead of paying for an expensive commercial space.
Maybe it means printing flyers and taking them door-to-door instead of buying expensive marketing software. In all aspects of life, everything costs money—your job is to figure out how much is too much and where you can cut without sacrificing quality.
In addition to cash flow and revenue, there are a few other ways you can assess your company’s financial health. You should have a good idea of how much money you need to meet your operating expenses and if you can keep your burn rate under control.
Use these metrics as signposts along your journey toward profitability. If things start looking grim, don’t panic — just take a step back and consider what adjustments might be needed for you to stay on track.