Reducing Risk
March 29, 2007
While an entrepreneur is someone willing to take a risk with money to make money, one thing I have learned in the years since then is that the best entrepreneurs reduce that risk as much as possible. That way, when things go wrong, because things do sometimes go wrong, these small business people are less exposed to danger and are thus free to sell another day.
But what does that really mean, to reduce your risk? It could be almost anything:
Knowing your numbers. I can't tell you how many entrepreneurs I meet who have gotten in over their head because they got some idea or whim and dropped a bundle of money on an idea that was not fully vetted.
I was tangentially involved in an enterprise a few years ago when one of the guys unilaterally decided that the best thing they could do was to commit to an ad campaign in a major magazine. The campaign was a bust and the business was stuck with almost $50,000 in advertising debt.
Know your numbers. Crunch your numbers. Make projections. If you can't afford it, don't do it.
Doing your homework. By the same token, the enthusiasm and energy which define many an entrepreneur can be a detriment if it takes you down a risky, untried road.
Do your research and look before you leap. Test the waters. Think it through. Consider worst-case scenarios. Thoroughly analyzing an opportunity or idea before implementing it will mean that the chance of investing too much time or money on a bad idea will be less likely.
Incorporating. If things do go south, the corporate shield that protects your personal assets from corporate debts will make a huge difference. Without running your business as a corporation or LLC (limited liability company), you risk your personal assets.
Having enough insurance. Just as incorporating reduces your personal risk, so too does the proper insurance. Sure it can be expensive, but an uninsured claim will be much more expensive.
Don't put all of your eggs in one basket. Yes, those big clients or customers are great, but by having a few big customers means that you are very dependent upon their loyalty. What if you lose one or two of those golden geese? You'll have egg all over your face, that's what.
Bringing in help. We like to think we know it all, but we don't, yet thinking we do can lead to costly mistakes. Consider the small business owner who did his own accounting and taxes every year, even when his business grew large enough to warrant a CPA. The audit that ended up costing him $10,000 extra ended that.
Whether it's hiring enough staff to free you up to do what you do best, or bringing in a strategic partner with contacts you don't have, or hiring consultants to figure out where you can improve, expert help reduces your risk and makes your life better.
The upshot of all of this is that great entrepreneurs know
their strengths, and weaknesses, think ahead, and plan accordingly.
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Today's tip: Business incubators are places that offer new start-up tons of help, free or practically free. Often associated with universities, business incubators nurture the new start-up with expert advice and services. You can learn more from the National Business Incubation Association at www.NBIA.org.
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