It will be easier to protect yourself as an entrepreneur when you understand the value of minimizing risk and make a point of minimizing risk whenever you can. It’s best to consider business risk reduction right at the very start, while you’re putting together a vision (and, hopefully, a comprehensive business plan!) for your company.
When it’s time to launch, you’ll be primed to protect your interests at every turn, whether your business fortunes rise or fall.
Even if you’ve already launched, it should be possible to make changes which help you to minimize risk. Our 8 steps every entrepreneur can take to reduce business risk are designed to help you avoid the pitfalls of running a business.
1.) Pass Risk to Insurance Firms
Getting the business insurance that you need is a vital part of minimizing risk. For example, you should take care to buy insurance policies which will protect you in the event of damage to your place of business. As well, you should have a policy which protects you from lawsuits related to product liability.
2.) Choose a Safe Structure For Your Company
If you’re currently running a sole proprietorship, as many entrepreneurs do, you should know that switching to a limited liability company or corporation will allow you to minimize risk. You should take care to reduce or eliminate your own liability if things go wrong at your company. Otherwise, you may be on the hook for all expenses.
3.) Perform Risk Assessments Regularly
The best investors and entrepreneurs are very skilled at assessing risk and they don’t rely on their gut instincts. Instead, they crunch the numbers, look at demand and other market conditions and balance risk and potential reward. If you have business plans which seem to carry too much risk when you analyze the facts, you should avoid carrying these plans out.
4.) Discover the Value of Transferring Risk
Yes, you can transfer some business risk to insurance companies. However, it’s also possible to transfer some risk to other people. For example, you may want to create a brand-new company which is independent in order to carry out certain business activities. Another strategy is assigning activities to partners or suppliers.
5.) Keep Your QA Program First-rate
If you want to reduce risk related to the failure of your products and/or claims on your warranties, you should start by creating a quality assurance program which is comprehensive. Also, you should focus on implementing a reporting system via customer service, which will shed light on product problems. Your QA system should record all testing process for products and all tasks which relate to production. Take correction active whenever it’s appropriate.
6.) Pay Attention to Record-keeping
Minimize the risk of unwanted surprises by making accurate record-keeping a top priority. When you follow a system which limits those who are able to perform specific actions to a group that you’ve personally authorized, you’ll have tighter control over what’s happening at your company.
As well, you should make a point of implementing a system for reporting which grants you access to important company performance data. Review your record-keeping system regularly and make improvements whenever they are needed.
7.) Keep Outstanding Balances Low
One key to reducing fiscal risk is to manage your accounts carefully. In particular, you should be diligent about analyzing your Accounts Receivable, in order to be sure that as many outstanding balances as possible get paid off by your customers. If you’re having problems with customers who don’t pay, you should start implementing new payment standards. For example, do credit reviews and raise your credit standards before offering credit to new clients.
8.) Avoid Taking On a Lot of Debt
Some debt may be necessary in order to run your business. However, you should make a concerted effort to keep debt low. This means avoiding financing, such as loans, if at all possible. If you’re trying to grow the company, try to stagger growth so you don’t need to borrow too much.
9.) Price Your Products and Services Properly
Sometimes, entrepreneurs don’t pay enough attention to proper pricing. They price too low or high. It’s vital to do market research which establishes the fair market value of your goods and/or services. You need to ensure adequate margins, while also offering products which are competitively-priced. If you price incorrectly, it may lead to financial problems down the line, which are another form of risk.
About the Author
Morris Edwards is a content writer at CompanyRegistrationinSingapore.com.sg, he writes different topics like Millennial Entrepreneurs in Asia and Top Habits Of Successful Entrepreneurs and all topics related to Business, Marketing and Singapore Company Formation