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Running a company inherently carries a lot of risks with it. Some things that have a tremendous impact on our companies are simply beyond the control of even the most meticulous entrepreneurs. However, that puts even greater pressure on aspiring business owners to address the issues they have control over with absolute care and diligence.
This fact should be observed under even closer scrutiny if we take into consideration the recent research claiming that about 20% of small businesses fail within the first year without ever getting a fighting chance.
Let us take a look then at a couple of ways entrepreneurs can reduce the financial risk of their newfound companies to the barest possible minimum and allow them to one day reach their full potential.
Develop a solid business plan
A good business plan is important for different reasons so it’s not surprising that this essential document has a very beneficial impact on the company’s finances as well. To put it simply, a business plan outlines financing options, sets up financial goals, projects expected overhead, and operating costs, and sets up countless relevant KPIs you can use to measure how successfully is your startup doing at the moment. Another important part of this document consists of market research that is incredibly useful with risk management, making marketing decisions and other activities with financial implications.
Put more effort into standardization and quality control
Both these things have one the same goals in common – making your production more streamlined and more efficient. All these things, in turn, drastically cut operating expenses. However, we would like to put a special spotlight on the importance of quality control. Namely, putting out standardized and failure-proof products drastically improves customer satisfaction and creates brand trust that can’t be emulated through marketing campaigns. Also, high production efficiency improves employer-employee relations and staff morale which produces higher productivity and engagement. It’s a win-win situation.
Get appropriate business insurance
The whole point of insurance is to help your company to deal with the financial implications of situations like disaster, injury, accident, and so on. So, it is incredibly important to do a thorough risk assessment and make as many contingencies for your company as possible. However, be careful to avoid predatory insurance companies that will often try to sell you various junk insurance policies, or in other words, the insurance products you didn’t ask for or won’t ever have an opportunity to use. Fortunately, even if you sign up for them, selling these products is considered unethical so you are allowed to apply for a refund.
Choose the right investors and enter a shareholder agreement
The first mention should be clear enough – shady business background and credit history can come back to haunt your company sooner than later. As for entering the shareholder agreement, this ownership model will reduce your authority in running the company but also split the financial responsibilities and risks between several parties while also clearly outlining the rights and obligations of every shareholder. Therefore, this decentralized company ownership is not only more efficient in areas like decision-making but also regulated by legally binding documents which makes it more risk-free than other options.
Assess risks in measurable terms
Much like any other thing you are going to encounter in the business world, the risk your company is going to face must be observed in measurable terms. Otherwise, the observations you are going to get will be incredibly limited. So, whenever trying to assess some potentially risky situations, try to measure that situation against three important KPIs – time, quality, and money. Does the project you are going to take fit within the timeline of your company? Is the risk capable of hurting the quality your brand is putting out? Last but not least, are you capable of implementing the project without going past the loan limit?
Establish an uninterrupted cash flow
In the very end, we will like to remind you that your company will inevitably experience sudden drops in revenue. Or there will come the point you won’t be able to charge the invoices in time to invest the money back into production. All these cash flow problems can grind your startup to a halt. Do your best then to encourage customers to pay faster, collect receivables ASAP, keep enough cash reserves to be able to patch up smaller cash flow disruptions, and finally explore the options of trade finance loans that will give you access to a part of the money you expect from invoices without having to wait for the clients.
So, there you have it – six simplest ways to reduce the risks of your new company and put it on healthy financial foundations. Of course, these are only some of the most important mentions, but they should give you a pretty good idea about what you need to get going. You will be able to figure out the rest as the ball starts rolling.