Properly managing a business is all about assessing your risks and liabilities and then taking steps to avoid those pitfalls in your everyday operations. Essentially, you’re identifying every possible way that your company could fail and then setting up safeguards to protect against such negative outcomes. By planning for the best but preparing for the worst, you can ensure that your company doesn’t fall victim to one of the leading causes of failure which lead to the majority of startups winding up within their first five years of business.
Applying Murphy’s Law – “whatever can go wrong, will go wrong” – to business logic works well because it helps you realise that things can and will go wrong in the course of every entrepreneurial endeavour. Winning in business isn’t about completely avoiding all risks, because some risks are necessary and every investment represents some level of risk. Instead, ensuring success is about implementing preventative measures that will keep such risks from becoming the beginning of the end for your company. With that said, here 7 ways you can avoid any risks and liabilities that can be avoided:
Complete a Business Ethics Training Course
Many times, you only need to use your built-in moral compass to make sure you’re not offending anyone or “stepping on the toes” of a client, customer, or competitor. But business ethics are bit more complicated than your standard set of guidelines for staying politically correct in a typical scenario. There are so many ways you could create the possibility of a lawsuit, negative review, charge dispute, or other disgruntled action just by doing something that you didn’t even realise was wrong. You can browse and compare a number of ethics training options online using platforms course search platforms like findcourses.com.
Don’t Opt for Minimal Insurance Policies
Many business owners make the mistake of opting for the cheapest possible coverage they can get. While this might save you a bit on your monthly payment, it could also open you up to the possibility of not being fully covered in the event that a claim needs to be filed. Imagine being tens of thousands of pounds short on court fees and other expenses simply because you tried to save 50 pounds per month on your business insurance coverages. Everyone is always looking for a way to save money on insurance, but if you really want to minimise risk, you’ll spend more on insurance, not less.
Set Aside a Calculated Reserve
As a general rule of thumb, it’s best to set aside enough money to cover 1-3 months of operating opens in the event that the business doesn’t generate a profit or winds up taking a loss initially. Many business models are only viable when a decent volume of sales are being made, so the beginning phase before you reach that point could have you making less than the operating expenses each month. Setting aside a reserve will not only help you get past that rough opening stage; it will also prevent you from mishaps that might arise later down the line. Plus, studies have shown that business owners make better decisions when they’re not stressed. By having a hefty reserve set aside to cover unexpected expenses, you won’t always feel as though every move you make has to be perfect. That will open some room for creativity and innovation, which could help you discover the most effective marketing methods for your target audience.
Speak to Consultants
Pretending like you know everything is a great way to stumble into risks that you don’t even know exist. On the other hand, admitting that you’re not an expert and paying someone who is for consultation and advice will help you learn about all sorts of risks that are unique to your specific niche or industry. This is an especially important step to take during the planning process because it will help you make more informed decisions in the days and weeks leading up to the public launch of your startup. On the other hand, reaching out to a professional in retrospect can also be useful when you’re trying to fix problems that are already becoming apparent in your struggling business.
Don’t Over-utilise Business Credit
Adequate funding and credit can literally make or break an endeavour because it determines how much money you’ll have to spend on advertising, inventory, equipment, labour, and all the other expenses incurred in the line of business. However, overdoing it and utilising more than 50% of your overall credit limit – the total of your credit lines combined – isn’t wise either, because it will hurt your business credit score and open you up to the possibility of falling into a debt repayment trap that consumes a lion’s share of your profits.
Do Have Multiple Lines of Credit on Standby
While using too much of your company’s credit limit at one time should be avoided when taking a minimal risk approach, it’s still good to have that credit available in case you need to put it to good use for an emergency funding need. For the sake of building your business credit faster, it’s best to have at least 5-10 open accounts in good standing. Try to never utilise more than 25% of any individual line of credit. The best way to approach this strategy is to use your credit cards to pay for routine expenses every month, ensuring that the balance is paid in full and posted by the specified due date.
Find a Wealthy Business Partner or Investor
Poorly funded companies regularly encounter unnecessary risk and liabilities because wherever corners are cut, there are bound to be accidents and shortcomings. Finding a wealthy or financially comfortable business partner or investor can take the funding burden off of your back and help you gain access to lines of credit that you wouldn’t have gotten approved based solely on your own personal credit profile. You can try networking within peer-to-peer lending sites, social networks, and crowdfunding platforms to see if you can find someone who would be willing to shoulder some of the financial responsibility based on the merit of your concept and industry expertise.
Businesses That Properly Manage Risk Simply Do Not Fail
Ultimately, taking a scientific and thorough approach to assessing and mitigating all possible risks associated with your business model is the best way to protect your company from going under. The fact is, there are two kinds of failure: winding up (i.e. – bankruptcy and going out of business) and low-level success (i.e. – achieving low profits and failing to meet expectations). While properly risk-mitigated businesses do in fact experience the second kind of failure in that they might not immediately become the most profitable company simply because they’ve mitigated risk, they rarely ever succumb to an actual winding up process. That’s because, with every risk taken into consideration, and sufficient contingency plans in place to account for all negative outcome, there’s really no reason for a business to completely go under.