Starting and growing a new business can be exciting, but also financially risky. According to studies, most businesses fail within their first year or two of operations because of absorbing too much financial risk early.
It is even more devastating if you solely rely on the business to make ends meet since financial turmoil could land you in deep trouble. So how can you avoid this problem? The best solution to date is applying these mitigation measures to reduce financial risks.
Have a Solid Plan
Jumping head-on first into a business venture could seem like a good idea but it can land you into deep financial trouble. This is because any new business has its market and presents its share of challenges and opportunities as well.
Taking time to learn about the market, plus how much time and capital will be required to get the business running is a sure way of reducing financial risk. In addition, know the suppliers in your area of interest or brokers as they can help you save on costs by offering reduced prices.
For example, if you run a shipping business partnering with a customs broker with a strong reputation can reduce import and export costs.
Keep Emergency Funds
This strategy should come as no surprise since money kept for a rainy day always comes in handy during tumultuous periods. While insurance covers significant losses you can’t afford, this private cash should be for smaller problems like repairs, or fender bender fees.
The trick is to always keep a small emergency account for short-term financial storms amounting to $2000 max and a larger account for long-term problems such as when you quit your job or job loss. Make sure these accounts are under strict management that allows you to withdraw only during cases that qualify as real emergencies.
Invest in Insurance
Nothing is a guarantee in life, and it’s the same for business. Calamities like floods, fires, and cyberattacks can happen at any time. Furthermore, an employee could be injured at work or even become permanently disabled.
All these losses come down to you, the business owner, which can be expensive to meet from out-of-pocket. Instead, subscribe to a suitable insurance policy cover, especially for those expenses that are too high to meet. When looking for a favorable insurance policy, always compare premiums amounts versus the deductibles covered or not and go for the best deal.
Diversifying may not seem like an ideal solution since it means having a backup for an already failed business. However, nothing in life is guaranteed, and even the best business could come crumbling down one day.
The only way to protect you from complete financial annihilation is by having several other assets to rely on. If possible, have an investment portfolio boasting of a mix of investments in case one fails, you have several other options. As a rule of the thumb, never put all your eggs in one basket.
Venturing into any form of business is always a risk. There are many uncertainties, some of which are not within your grasp. The best way is to be prepared at all times by incorporating these tips.