TIPS FOR REDUCING FINANCIAL RISK AS A STARTUP FOUNDER
Starting a business is inherently risky, but if there’s one thing you don’t want to take a chance on as a new entrepreneur, it’s your funding. According to the U.S. Bureau of Labor Statistics, 20% of new businesses fail within the first two years of being open, 45% within the first five years, and 65% within the first 10 years – usually due to financial reasons. Sometimes you must spend money to make money but developing smart financial strategies can help you mitigate or eliminate high-risk areas.
Reducing risk doesn’t just prevent you from taking on more debt. It can also reduce financing costs and the amount of equity that must be given up to attract investors. Here’s how you can reduce your financial risk as a startup founder.
HAVE A BUSINESS PLAN
One of the most effective steps an entrepreneur can take to reduce their financial risk is to write a business plan. This document outlines how much capital you’ll need to get your business up and running and where you intend to allocate those resources later. If you know exactly how much money you’ll need on the front end, you’ll be less likely to take out more loans or make purchases you’ll regret later. The market research you conduct while writing a business plan should also give you an idea of whether your startup will be a success or if you need to re-work your idea.
REDUCE FIXED OVERHEAD COSTS
Startups can almost never justify investing in expensive infrastructure or large inventory orders from the beginning. Even with careful planning and extensive research on your side, there’s no way to accurately predict the actual demand for your products or services. That’s why your goal should be to minimize initial overhead costs – like shipping, office supplies, equipment, and consulting fees – until you start turning a profit.
KNOW WHEN TO OUTSOURCE
Entrepreneurs are used to wearing many hats at once, but outsourcing some responsibilities could make a real difference to your bank account (and your sanity). Although certain tasks can be completed in-house, the reality is that paying a professional to do the task will usually yield better results at a lower cost. While you might be hesitant to spend your startup capital on outside marketing, design, or office support services, the reality is that it’s better to have those things done right the first time than waste precious time, money, and energy on redos.
BUY BUSINESS INSURANCE
Just like a home or auto insurance plan, business insurance can protect your assets when disaster strikes. Many business owners forget to buy business insurance or opt-out of policy shopping altogether because they think they’ll never need it. But as they say, “The best-laid plans of mice and men often go awry,” and you don’t want to be without a safety net if the unthinkable happens.
The Don Ryan Center for Innovation provides startup and growth assistance to Beaufort and Jasper County entrepreneurs. Learn more at donryancenter.com.