An aversion to financial risk may get in the way of starting a business. To address any aversion you may have, it helps to. . .
- Understand the risks and prepare for them as much as possible (FFC, 2020, 2021).
- 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:
- Costs of raw materials, salaries, rent, equipment, leases, etc.
- 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.
- Suppliers and alternatives if there are insufficient supplies of raw materials.
- Staffing—in terms of employee numbers and skills.
- 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.
- Seek advice and learn about your options before acting financially, especially if this is not an area of expertise for you.
- Stay “lean” in the early years. Avoid funding via debt.
- Set up credit before you need it.
- Keep your personal funds separate, and be sure to pay yourself.
(FFC, 2020, 2021)
Forbes Financial Council, Expert Panel®. 16 Ways Small Businesses Can Tackle Financial Risk Management. Forbes: Money. July 23, 2020.
Forbes Finance Council, Expert Panel®. Council Post: 15 Expert Tips To Help Small-Business Owners Better Manage Financial Risk. Forbes: Money. July 23, 2021.