Ways to reduce business risk when starting a startup
Business risk is a threat to a company’s profitability, growth, and ability to stay in operation due to internal or external forces. Every business, whether small or large, faces risks, and various factors can constitute a business risk. We will discuss here how a startup can reduce business risk. Some common types of business risks and their examples are:
- Financial risks: Changes in foreign currency exchange rates, market movements, and price fluctuations
- Security and fraud risks: Intellectual property theft, data breaches, cyberattacks, embezzlement, and identity theft
- Reputational risks: Negative publicity about your leadership or employee character, poor customer service experiences, faulty products or services, and press failures
- Compliance risks: Changes to equipment certification requirements, tax laws, and occupational safety standards
- Operational risks: These include natural disasters that damage important business equipment, traffic accidents during delivery, server outage that disrupts internet connectivity, a developer inputting the wrong code, or an accountant inputting incorrect payment details
Many businesses have contingency plans to tackle operational risks and other business risks. Still, not all companies have a budget that can support the outcome of all types of crises. And companies that are unable to manage crises risk failure. Keep reading to discover practical ways for start-up companies to reduce business risk early.
1. Buy Insurance
Every business needs insurance. Getting insurance enables you to protect your business when a natural disaster or accident happens. Also, you’d have peace of mind knowing that you have something to fall back on if your business runs into problems. Most insurance companies offer various packages that clients can choose from.
Before investing in any policy, conduct thorough research to ensure you get the best coverage for your company. Consider hiring the services of an attorney when choosing an insurance package. An ideal insurance plan would have extensive coverage and protect your employees and your company’s assets.
2. Diversify Your Business Offerings
If your business relies on one product or service, consider diversifying. Diversifying your products or services will allow you to offer more options to your customers. This will help maintain the public’s interest in your brand and give you an edge over the competition.
Also, you’ll have multiple sources of income so that if one product line doesn’t perform as well as you anticipated, you’ll have a backup plan to keep your business out of bankruptcy. Of course, you need to establish an efficient record-keeping and data management system from the onset to monitor the performance of your various products or services. That way, you’ll know which ones your customers prefer and those you need to promote through marketing.
3. Limit Your Business Loans
Business loans are attractive because they provide entrepreneurs with enough capital to expand their enterprises, but they come with a significant amount of risk. If you start your business with a loan, it’s best to limit it as much as possible to ensure it’s manageable and has the least interest.
Before taking a loan from a bank, compare the offers from different banks and check how long it would take you to repay it. To reduce business risk, try to keep your loans as low as possible and only take out loans that you need. Generally, The amount you need to borrow for your business depends on your unique financial situation and the type of business you’re starting.
4. Focus On Delivering Value
People are more willing to give you their hard-earned money when the product or service you offer can help solve their problems. Creating customer value helps improve brand experience and increase customer satisfaction. And customer satisfaction increases loyalty, market share, and efficiency. That’s why customer value creation should be at the core of your company’s culture.
To increase customer value, pay attention to your buying process. Look for ways to make it easier for clients to purchase your products or services. You can establish an online buying option so customers from different locations can browse your product offerings and pay for them easily. You can provide incentives such as easy return policies, fast delivery, free shipping, and responsive customer service. Ultimately, prioritize quality over price so that even if customers are comparing your products or services to those of your competitors, they’ll see yours as a highlighter value option.
5. Save Money and Avoid Unnecessary Expenses
Saving is important because it helps reduce business risk, giving it a better shot at success. So, as you run your business, build up savings you can fall back on if an unforeseen circumstance occurs.
Also, reduce or avoid unnecessary expenses as much as possible. Think carefully before opting for advertisements or product development to ensure that each investment has the potential to give you the value you expect. Anyone you choose to handle any aspect of your media campaign should have relevant experience in handling such campaigns in your industry. For instance, if you are a roofing or electrical contractor, you’ll be better off hiring a company that offers affordable SEO for contractors since they’ll know how best to position your brand for your target audience.
6. Buy a Franchise
Franchising allows new businesses to leverage the reputation of already-established brands and mitigate risks using the structures and support systems of the bigger brands. As a franchise owner, you won’t be going into a new business alone; you’ll have the backing of a well-known brand.
You’ll have a proven business model to work with, marketing guidance, and sufficient training to help you achieve success. And since you’ll be affiliated with an established name, it’ll be easier for you to access funds from financial institutions for expansion.
7. Have Business Mentors
Business mentoring is a relationship between a business owner and someone else with more business experience (mentor) who is willing to act as a guide. A business mentor can help you make the right decisions and accelerate your progress toward your business goals. Also, having a mentor can help you avoid mistakes and prevent certain business risks since your mentor will teach you based on their previous successes and mistakes.
8. Hire the Right Employees
Employees are very important in any organization. That’s why you should hire people whose skills match their job roles. Also, ensure that your employees have the right tools and are well-trained to handle emergencies.