Starting a new small business is an endeavor filled with risks. Understanding the risks you’ll face as the owner of a shiny new small business helps you anticipate them, prepare for them, and hopefully to overcome them. Take the time now, to understand some of the biggest risks and potential pitfalls you face to help you avoid them when beginning your small business.
Failure of the Business
This is one fear that every new small business owner faces. You’ve done your homework. You’ve put all the care in the world into planning out the tiniest details of your new business. The real risk, though, is opening the door to see if your business is going to sink or swim. It’s a risk that every small business must take.
How do you mitigate this risk? Do your market research. Check out the demand in the region for the product or service your business offer, then see if the region will support the prices you charge. After that, it’s all about making small changes and adjustments until you find what works.
Physical Damage to the Business
One thing that far too few new small business owners consider is the toll that physical damage to the business takes. There are many ways businesses can be damaged physically: water, wind, fire, flood, vandalism, theft, and more. These things can put an end to all your hard work.
Proper small business insurance, however, especially coverage for specific risks such as cyber liability insurance, business property insurance, and commercial auto insurance, etc. can help mitigate your risks.
In addition to the risks of failure, your business does represent quite a few financial risks, including failure, to you and your family. One of the biggest is liability risks. If someone becomes injured on business property or as a result of your operation, your business is on the hook for liability for those injuries. If your business cannot afford to cover the costs, you may be held personally liable. That’s why standard small business insurance, including general liability if is necessary.
There are many ways the current market for goods and services affects your business. Sometimes, it’s a shift in the wind, with consumers moving on to the next best thing. Other times it’s a change in the way consumers spend money, as many businesses learned in the recession of recent years. At other times, it’s the emergence of new technology that forever changes the landscape of business in your industry. Other problems include markets that are already saturated, lack of demand in a specific location, and a price point that is higher than the local market is willing to bear.
Many of these factors can be ironed out ahead of time with a thorough marketing analysis. Once you understand the local market potential, you can create an effective marketing plan to maximize your benefits while minimizing your risks.
New small businesses, especially, need managerial and organizational structure. Small business owners who lack management experience face more challenges than those who come from management backgrounds. Poor management leads to inadequate customer service and quality control. Other consequences of mismanagement are poor sales and inefficiency throughout all aspects of the business.
If you lack a background in management, it’s vital to hire a manager who is competent, committed to making your business succeed, and who has impeccable integrity.
This is the fear of every new small business owner. No one wants to go into business only to lose money for all his or her hard work and effort. Many small business owners invest a great deal of their own personal money into starting the business in the first place.
While there are no guarantees that any business will earn a profit, especially right out of the gate, there are some things you can do to improve the odds.
1) Know your market. Market analysis is vital to a successful new business startup. Whether you’re bringing groundbreaking technology to your community or you’re offering competing services or goods for existing businesses in your community you need to understand the current market, the needs of the community, and the price point at which the community can afford the goods and services you have to offer while still allowing you to earn a reasonable profit.
2) Invest in the community. Not all investments are monetary. Volunteer. Get to know the people in your community and give them the chance to get to know you.
3) Develop a solid business plan. This is critical for any small business owner interested in securing funding through loans and other outside sources. Banks and peer-to-peer lenders prefer to see well-developed business plans that show a deep understanding of the industry, the local marketplace, and even current competition. Securing outside funding doesn’t eliminate all financial risks, but it helps to alleviate the burden.
The rewards though, of owning a small business, go far beyond the financial rewards of making it successful. There’s a sense of pride involved in working for your own dreams rather than working to make someone else’s dreams come true.
That’s why it’s so important to protect that investment with the right kinds of small business insurance coverage. Specific risk insurance helps protect your business from specific regional and industry risks while a standard business insurance policy protects businesses from a list of standard risks that are fairly common to all businesses.