The Biggest Financial Risks Facing Every Startup

The following article may contain affiliate links:

It’s never been easier to start your own business as it is today, but that isn’t to say it is completely without risk. And while the rags to riches stories provide great inspiration to all of us, for every success, there are dozens - if not hundreds - of failures, most of which are because of one thing: money. There are some enormous financial risks involved with starting a business, and we’re going to take a look at some of the biggest threats today. Let’s get started with some of the basics.

The impact on personal finances

First of all, starting a business is going to hit you in the pocket - hard. All that security you have enjoyed while being an employee disappears, and you might have to take an extreme pay cut and plenty of benefits to boot. And even when you finally start to earn some much-needed profit, you will need to reinvest to ensure your company grows. That means paying for employees, premises, equipment, marketing and a whole lot more. It can take years for startup owners to begin taking home enough money to give them a comfortable life - so steel yourself for some tough times.

An inability to take risks

To avoid risk, you need to take risks for your startup. Capital will be tight, and every cent you spend needs to be tracked and accounted for - but you will still need to make some risky decisions. Without taking the occasional risk, it is unlikely your business will ever get off the ground in the first place.

Not preparing for the worst

When you first start a business, you are likely to be focused on all the positives it will bring - a successful company, a popular product, a fantastic team of employees. But unless you are also ready for the bad times, you won’t be able to react, and your business will end up sinking. The solutions? Start with protecting yourself from legal issues by hiring a business lawyer. An HR expert will help you create a positive environment for your workers, while crisis communication software can help you keep on top of a broad range of incidents with customers. Finally, get insurance - if an accident or disaster happens to your business, a good insurance plan will cover you.

Market risks

You can invest a lot of money into product or service development, but ultimately, if there isn’t a market you are going to sink. You have to be certain there is a market desire for what you are selling, and that people will pay the price that you set. So many entrepreneurs and inventors end up wasting years and hundreds and thousands of dollars on products that just aren’t wanted. To avoid this, spend plenty of time researching your market, so you can refine and test your product or service to ensure its success.

Competitor risks

Make sure that you protect yourself from the competition. Differentiation is essential, and you should also cover yourself with patents, trademarks, and other protections to defend against industrial espionage. Finally, ensure that you are aware of your competitor's actions, and keep on top of industry trends.

No comments