Like many adventures, taking a headfirst dive into a shiny new small business involves taking a big leap of faith. The risk involved in opening the doors to such an endeavor is often the biggest roadblock that prevents lots of entrepreneurs from moving forward. The good news, though, is that there are a few basic measures you can put in place to reduce risk and give yourself the best chance of being successful.
Keep any jobs or other sources of income for now.
Starting a new small business will not make you rich overnight. It takes a long time to build the proper foundation, get consistent customers, and maintain a nice stream of income. Because of this, you should try to hang onto any day job or part-time gigs you currently have. This could include active income through a certain trade or passive income through real estate.
It is imperative to make this decision of trying your hand at startup success at the most opportune time since this will minimize risk. You should be 100% sold and confident in your decision to avoid the chances of having an unsuccessful company on your hands. At the very least, you’d still have a paycheck from your other income sources.
Make sure you are sitting on a solid financial foundation.
To minimize financial risk, it’s critical to have a financial foundation already in place. It would be an absolute disaster if your business went under early on because you failed to take appropriate measures with regard to your finances. So sit down and block out some time for yourself to come up with specific dollar figures on how many expenses you’ll have. In the same vein, make level-headed profit projections on how much money you think your enterprise will be able to generate in 6 months, a year, or even 5 years down the road. Keep any steady sources of income you can to remain financially stable. Then take a cut of this money to put toward your small business activities.
Take on a formal entity structure for your company.
One of the major perks to owning a formally registered business entity is the protection that it can offer. If you establish a corporation or LLC, you can put up a sturdy wall that clearly separates your personal assets from any business assets that are owned under your company. Therefore, you will not have to stress about your personal vehicle, home, and other expensive belongings being at risk to creditors or legal action against your business. The idea of limited liability is a primary reason entrepreneurs form business entities instead of only operating as an informal sole proprietorship or as a member of a partnership.
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Get help and surround yourself with experts.
The cliché saying that “You don’t know what you don’t know” is actually very true when applying it to small business owners. There are countless minor details involved in managing a business that no single person can do it all. Instead of pulling all-nighters, do yourself a huge favor by getting help from experts. There are so many products, services, and people out there whose daily purpose is to lend a helping hand to business owners across all industries. Many of these options are free or inexpensive. It’s just a matter of finding them. When having a team you can trust around you, your risk will go down considerably, while your profit potential will climb.
Construct a proper business plan.
A final risk-minimizing strategy you can take advantage of involves constructing a solid business plan in writing. Business plans should consist of detailed information about your business goals and intentions, your potential market and base of customers, how much you’ll charge for products/services, how much you’ll earn in revenue, and any additional details related to your specific venture. Consider your business plan to be the key that will start your entrepreneurial engine toward a profitable future – and with the smallest amount of risk you can possibly achieve.
Originally published on October 16, 2014. Updated on June 14, 2020.
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