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How To Minimize Risk When Starting A Business

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Shorter Version


Est. Reading Time: 1 Minute

Launching a startup involves taking a massive business risk, and your chances of survival depend on how well you navigate them. Planning is the key to avoiding business risk. Proper market research and plenty of testing are required during the early stages of the business so that your precious cash doesn’t go to waste. If a business makes too many wrong assumptions, in the beginning, its survival will depend on raising capital by either selling more shares or taking out loans with short payback terms that may suffocate the startup in its infancy.

Cover accounting and legal items early

Some entrepreneurs neglect the accounting and legal aspects of a startup. Not keeping accurate books and records from the beginning will lead to poor cash management and bad decisions that will affect the bottom line. Shortcuts, like not getting proper legal advice for writing contracts or employee agreements, may cost the business a lot more wasted time and money in the long run.

Reinvest

Just like in sports, in business, an offense can be a great defensive tactic. Businesses should constantly reinvest in themselves to innovate, improve their customer experience, and create new streams of income. So don’t let the competition steal your lunch money.

A healthy dose of paranoia is necessary for survival in business.

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Longer Version


Est. Reading Time: 3 Minutes

Have a powerful “Why?”

A gambler and an entrepreneur have a lot in common. A successful entrepreneur is one who learns how to make safe bets and knows how to play the odds. The marketplace is unpredictable and unforgiving as it is, so if you’re planning on creating a business that can last, avoid these unnecessary business risks.

Insufficient planning creates business risk

Thorough market research is a must in creating a brand, marketing message, and pricing strategy. Sufficient cash needs to be allocated to creating a sales channel that can bring a predictable stream of revenue for the business. The business development channel is one that needs to be refined through real customer engagements during the early stages of the business. Without this refined wheel which produces customers at a predictable rate, the business will lack proper foundations to scale.

Lack of sales

Before sales, comes marketing. Many good businesses fail early simply because they cannot properly communicate their value to their audience. There are many mediums to communicate a marketing message in the current age, so much so that even the most sophisticated CMO may not be an expert in all of them.

It would be a massive favor to everyone if founders would educate themselves enough in the basic frameworks of marketing in the digital age so that, at the very least, they would know which person or firm to hire.

If a startup is product-focused but isn’t able to go to market successfully, it is only a matter of time before it runs out of cash creating a perfect product that no one will buy. This is often a problem that plagues many startups, a problem that is rooted in a lack of execution in marketing.

Unhealthy operating cash-flow

So many businesses run out of money, not because they won’t be profitable in the long turn, but because they run out of cash before they see the daylight. A healthy recordkeeping regiment is needed to constantly monitor the health of the business. This helps to make sure the business is able to meet its short term obligations and not have to take out loans. Growth burns cash, and startups need to scale, so planning with proper projections for cash flow, and not just net profits, can ensure that the business can continue to grow at a steady pace. It is equally important that a healthy percentage of profits are saved in the company for unexpected expenses.

Avoiding the boring stuff

Unless you were an accounting or finance major in school, you probably would like to spend your time doing literally anything else than working on Quickbooks. The same analogy can be made for legal stuff, with the added headache that legal fees can be expensive for a startup. However, without proper founders agreements, employee agreements, stock certifications, customer agreements, and other important documents, the business may end up paying a lot more in legal disputes in the long run.

While we’re at it, let’s throw insurance in that mix too. General liability insurance is required by most landlords for a good reason, and other optional insurance like DNO (Directors and Officers Insurance) can come in handy when bad things happen, which they sometimes do.

Cruising along

A thriving business needs to continuously innovate. We live in a capitalist, dog-eat-dog world. Even if you operate in a niche market, it will only be a matter of time before customers will think of leaving you for an alternative option. Your business should always have an answer in case of the worst-case scenario. A healthy business should also have multiple streams of revenue. Mcdonald’s invests heavily in real estate and is one of the world’s largest commercial landlords. A significant amount of their income as a company is rental payments from their franchisees. So make the most out of your time as a business owner and make sure you are allocating enough time to learning new ways to better your business, and planning your next move.

Do not get stuck in the habit of running the business day to day and doing the same old routine, no matter how stable it might feel at the moment. Make things happen, or things will happen to you instead.

Actionable Steps


1

Keep accurate books

Losing money through inaccurate accounting and budgeting is a major business risk. Sign up for a cloud-based accounting software and start keeping track of your revenue and expenses. Generate quarterly reports like balance sheets and income statements. If you plan on adding employees, be sure to add payroll service so that your payroll taxes can be paid automatically.

2

Set up corporate and legal structure to minimize personal and business risk

To minimize your personal liability while running a business, make sure you establish a corporation or an LLC prior to starting your operations. You can get your company setup online and generate articles of incorporation, bylaws, shareholder agreement, and other important documents with a few clicks. Be sure to have all shareholders sign the documents and stock certificates. Invest in a safe to keep the original corporate documents.

3

Get insurance

You may have heard about the customer or employee that had an accident and filed a lawsuit against the business. Well, luckily, most of those businesses will not have to fork out more than a small deductible as long they have proper general liability and workers comp insurance. You can be personally liable for damages and other legal penalties if you neglect to get them setup for the business.

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About the Author


Farbod Javaherchi

Farbod Javaherchi

CEO, Novia Marketing

Farbod is a serial entrepreneur having started 8 different companies in marketing, sales, and technology since graduating college. In 2015, he founded Novia Marketing, an innovative lead generation and full-service marketing agency. His clients have ranged from one-time data buyers to presidential candidates. He also owns a SAAS platform called SYNC Profiles for local businesses to help them gain better visibility online, manage their data across the Internet, and generate positive online reviews.
Full Bio | Connect With Farbod | LinkedIn


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