Startup 101: How Entrepreneurs Can Assess Risk

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Any good startup comes with a certain amount of risk. The trick for many entrepreneurs is figuring out the ratio of risk in comparison to the chances of reward and then managing the risk factors. Any good startup needs to look at their business and go from risk assessment to risk management. What we mean to say here is first to accept that business is not all sunshine and rainbows, then evaluate the possibility of what can go wrong, and make a plan for any of these circumstances. 

 

Risk Assessment

 

Unforeseen consequences should already be a given. So the first step should be to assess all the potential risks associated with the business. Many people break these out into categories and grade each event based on a level of negative repercussions. 

For example, financial risk can be a relatively low priority or high priority, depending on the potential it has to derail the startup. What are some of the categories you should be looking at?

 

Financial Risks

 

Financial risks have a high potential for ending a startup. These risks can be both internal and external. Imagine a sudden dip in the economy that has your customer-base suddenly tightening their purse strings. Perhaps the interest rates on loans go up right when you need to apply for some extra financial help to boost your business into the next phase of growth. Financial risks can be pretty high on the make-or-break ladder for a startup, but not accounting for them can make you look unprofessional to potential employees, customers, and investors. 

Operational Risks

 

Often times, operational risks involve people, which are one of the hardest things to plan for. Perhaps your new staff are unreliable, or they leave with very short notice. Operational risks can also involve anything required to operate your business, from systems and machinery to the location that you work out of. Losing office space or experiencing a crash in software can have a significant impact on business. 

Legal Risks

 

Planning for and managing legal risks can often involve a little bit of help from legal counsel. This can involve anything from complying with necessary rules and regulations to a customer or employee breaching a contract or non-disclosure agreement. You can see how this risk chapter can have a wide range of risk from high to low. 

Risk Management

 

After you’ve looked into all the potential risks your business could face, you can decide if it’s worth it to pursue. But looking only at the potential for risks and failure shouldn’t be enough to turn you off of starting your own business. Many of the best things in life involve some risk. Being aware of the “what-ifs” and properly planning ahead for what may come can be the difference between failure and success. You’ll also be able to sleep better at night! Consider the chances of each risk occurring and the consequences on the business. Are these consequences something you can live with? Are you confident in your plan to manage the risks that could lead to the consequences? 

When creating a plan to manage risks, consider the costs of each course of action. Who will you need to help you? What is the plan dependent on to be successful? Many businesses create spreadsheets with a list of risks organized by the type (financial, legal, operationa,l etc.) and rank these potential risks based on the impact they’ll have on the startup. From this point, you can create tactical plans for each potential risk and evaluate the costs associated with each plan.

 

Planning ahead is a big part of any business. Many entrepreneurs create business plans, marketing plans, and growth plans. For many, however, creating a risk management plan can seem a little dark. Raining on your parade and considering all that could go wrong before you even start your business can put you in a pretty negative headspace. We want to point out that planning for the potential pitfalls of a business can offer comfort to investors and to yourself. It shows that you see the whole picture, that you’re preparing for anything, and that you take all the sides of business seriously. 

We get it, thinking about “what-ifs” can be overwhelming and leave you feeling like you’ve forgotten something. What if that one thing will be the thing that goes wrong? If you want some help, we offer business consultation at Genesa and are happy to help you plan for the potential mishaps as well as the wins. Get in touch today, and let’s plan your business’ future. There’s no profit without risk, so make sure you plan for it.

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