Financial Risks When Starting a Business

The reason we started with knowing your financial risk is that it is one of the first things a business owner should be concerned with during every stage of their business journey. The excitement of starting a business can make it easy to turn a blind eye to the financial risks associated with a startup, while at the same time a seasoned business owner may let past experiences cloud their judgment. Let’s look at some potential financial risks so you can be aware of them in order to make the best decisions for your company.

Planning

The success of your business in the early years will be found in your planning. You need a rock-solid business plan that includes a financial forecast. It’s very easy to get swept up in the moment and lose control of the company’s financials. Whether your goal is to meet with a VC and seek outside investment or not, having a financial forecast in place helps to ensure that you understand the company’s current financial state, and then based on those current conditions you are able to more accurately project into the future.   Failure to plan is planning to fail. By planning your financial projections, you minimize the risk of blind spending. Before starting a business venture, meet with a financial advisor to ensure you have all of your financial ducks in a row.

Products

Just because you think it’s the world’s greatest product and it’s going to solve all of the world’s issues, does not mean other people will concur with that opinion. Every product or service you offer comes with some type of financial risk. If you aren’t selling anything and/or making money, you have a hobby, not a business. Understanding your financial risk when it comes to every product is vital. However, minimizing this risk is easy. In order to avoid large investments on a product or service that won’t sell, do your market research. Determine if this product or service is actually something your target market would be interested in and what they’d be willing to spend on it. Spending some time and energy on research could save your business thousands down the road.

Target Market

How is your target market a financial risk? Good question. It is easy to say your ideal client is x and they spend their time and money on y so they need your product. You assume all of these things are true so you spend money creating a product and marketing it to this ideal client you imagined. What happens if the ideal client you thought your product would best serve, isn’t right? This is where your research comes into play to minimize fiscal risk. When conducting research for a product, include demographic information. Ask your potential target market where they shop, how they spend their money, how they consume information, etc. Determining the best way to reach your target market helps to ensure you will receive the greatest return on your marketing dollars spent.

While there are many risks involved in launching something uniquely your own, the financial risks are the ones that can make or break your business. Entrepreneurs are natural risk takers, but finances are one thing you don’t want to risk.