Tackling Financial Risk

Financial risk aversion is a barrier to entrepreneurship that can be tackled by understanding:

1. The risks and preparing for them as much as possible (FFC, 2020, 2021).
2. Understanding all potential sources of funding, including creative sources.

Know Your Business Well:

• Understand your time, quality, and money limits.
• Know your business’s potential weaknesses in advance.
  (FFC, 2020, 2021)

Be sure to understand your financial inputs and outputs and the essential components of your business that have the potential to change in unanticipated ways, including:

1. Costs, including raw materials, salaries, rent, equipment, and leases, so that you are prepared for potential changes.
2. Potential changes in income from sales projections due to changes in the market, production delays, competitors, regulatory issues, delayed payments, workflow problems, vendors’ business problems, and reimbursement issues.
3. Suppliers and alternatives, so that you are prepared for insufficient supplies of raw materials.
4. Staffing so that you are prepared for insufficient staffing in terms of numbers of employees or skills.
5. Scalability of your product or service so that you can meet demand.

(FFC, 2020, 2021)

Understand Funding Options

To be prepared for financial shortfall, identify and become familiar with potential sources of funding and creative sources ahead of time (FFC, 2020, 2021). Understand basic types of secondary funding options: angel investing, venture capital vs. seed money, and other funding sources, the investors’ motivations for each investor type, and resources. Being able to show that you are prepared to manage risk and that your risk is low is important to potential investors. See our information under the topic, Early Funding.

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