risk managementOwning or starting a small business typically means that, by nature, you are a risk taker. While this type of disposition is beneficial in all kinds of ways, it can also, sometimes, lead to failure. One of the most important things to remember when starting or developing a new company is to minimize risk whenever possible so that if you fall, it won’t be that far. Here are four basic but helpful tips for new business owners that will minimize risk with maximum benefit.


1. Be Careful with Cash

Managing cash flow is the single most important element for any small business. It is also the easiest way to turn a relatively stable situation into a high-risk one. Every month, sit down and calculate exactly how much money you have available and how long it will last should you run into any cash flow problems. Accurate evaluations of available funds, expenditures and accounts payable can help avoid any costly overages on outstanding balances and provide a realistic and comprehensive understanding of a business’s financial viability.


2. Consider Contingencies

Creating a contingency plan is an important part of any business model. One such contingency option could include setting aside three to six months of operating costs in reserves so that if cash flow becomes a problem, it doesn’t immediately lead to disaster. A good starting point for developing contingencies is to ask yourself ‘where would you be in three to six months without your largest client?’. This question can sometimes lead to interesting answers as while it may mean you have significantly less revenue, it could also mean a reduction in operating costs and expenses. Considering all the possible scenarios, both good and bad, is an effective way to prevent risks of all kinds.


3. Get Risk Specific Insurance

Standard insurance policies simply aren’t good enough for a small business. It’s important to be aware of all the specific risks facing your business so you are properly able to protect against them. Review the various elements of your business, from online components to supply chains, to ensure that each is properly covered. Consult an expert if you can afford it as they will be an invaluable resource in these early stages. Acquiring comprehensive insurance is very important  in the early stages of starting a company as you might not know yet what types of issues can and will arise.


4. Give Yourself an Out

While everyone should approach a new business with full steam and pure enthusiasm, it is important to consider how you will cut your losses should the worst happen and your business goes bust. While it’s not the happiest and most encouraging thought as you get your business up and running, it’s an important part of risk management and good business.

What other risk management tactics do you use?

About Robert Farrington

Robert Farrington has written 77 articles on this site..

Robert Farrington is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances.

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