Tackling Financial Risk

An aversion to financial risk may get in the way of starting a business. To address any aversion you may have, it helps to. . .

1. Understand the risks and prepare for them as much as possible (FFC, 2020, 2021).
2. Learn about the 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 the following:

1. Costs of raw materials, salaries, rent, equipment, leases, etc.
2. Income from sales projections due to changes in the market, production delays, competitors, regulatory issues, delayed payments, workflow problems, vendors’ business problems, or reimbursement issues.
3. Suppliers and alternatives if there are insufficient supplies of raw materials.
4. Staffing—in terms of employee numbers and skills.
5. Scalability of your product or service to successfully 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 (e.g., angel investing, venture capital, seed money), the investors’ motivations for each investing 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 more information under the topic Early Funding.

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