By JT Ripton
One of the first things every entrepreneur learns is that business is risky. It’s the hardest lesson to learn on your feet and the most important one to remember when dealing with anything related to your ventures. Risk is around every corner in the business world, but like the best things in life, it’s the challenge that makes the victory so rewarding.
1. Limit Personal Liability
Being an entrepreneur doesn’t mean that you have to work alone. Setting up a sole proprietorship might seem like the best option for your business, but it comes with its share of risk. Having your name be the one that the world answers to in this case also means that you have to answer to the world.
You set yourself up for a lot of risk without having someone to share the load. Consider switching your business to a limited liability company; this would take some of the responsibility off of your shoulders. You may also consider setting up the business to become a corporation.
2. Share the Load
It’s important that financial knowledge doesn’t just sit on the shoulders of one person or even one department. A well-rounded financial understanding should be shared at multiple levels in a business or organization. Being financially responsible isn’t entirely the responsibility of the CFO and the accounting department. It’s the lifeline of any organization and should be treated as such. Ensure that all responsible parties have a clear concept of responsible spending habits and ways to save the company from additional cost.
3. Minimize Outstanding Balances
Most people understand that staying in debt isn’t a good idea while trying to make a profit. Debt is a slippery slope that can damage your business beyond repair. It’s important for entrepreneurs to understand this and yet, this is an area where many businesses lose. You need to keep your outstanding balances to a minimum in order to be successful.
Pay off your loans in a timely fashion and don’t take on more expenses than you have the money to support. Learn about interest rates and never try to borrow against another loan with a new loan. These are basic financial skills but many entrepreneurs fail more in this area than any other. If you understand these things moving forward, your business has a higher chance of not only surviving, but prospering.
4. Transfer Risk to Insurance Companies
You’re carrying a lot of risk in operating a business. There’s a lot of responsibility in owning any property or having an establishment that’s open to the public. Since accidents happen, you run major risk by just existing. This is why insurance exists. Instead of worrying about the problems that could arise from an accident or an injury sustained in your business, understand your insurance options and choose the coverage that’ll remove the risk.
5. Understand Which Risks Can Be Ignored
As your mama probably used to say, you can’t make a problem go away by just ignoring it. Unfortunately, she may have not had to manage a startup so she probably never explained the importance of risk management. Though she might be the best person to remind you that in the bigger picture, sometimes it’s okay to let things push back to the back-burner.
Some risks in your business can be left alone for a while before they are dealt with. It’s all about prioritizing what needs to be handled first and what can be dealt with later — or, in some cases, ignored entirely. Figure out which of your risks isn’t a daily problem and won’t spell more trouble for you in the future. Often times, these risks will figure out a way to work themselves out.
Only 44 percent of businesses manage to make it to their fourth anniversary. This has everything to do with poor risk management and an uneven load of responsibility. Don’t make the same mistakes as the other 66 percent. Consider ways to manage your business to avoid risks and prosper.
JT Ripton is a freelance writer out of Tampa, who focuses on topics relating to business and technology. Follow him at @JTRipton.
Image via Flickr by kenteegardin