All entrepreneurs starting their own business are aware there is a certain amount of risk involved. However, the amount of risk taken on by an entrepreneur is usually vague, likely because it depends heavily on the kind of business, as well as the market you are launching into.
Assessing Your Risk
What many don’t take into account is the amount of risk you take after launch. It feels like every daily decision involves some level of risk. My formal education and corporate work experience are in accounting. Big companies ask their accounting department to provide these kinds of reports all the time. Knowing and minimizing your risk is even more important for smaller companies as they get off the ground. One way you can minimize your exposure to risk is to compile a risk assessment report for yourself.
No matter what data you need, a risk assessment report can show it to you. The most basic way to track your risk exposure is to compile a report with any foreseeable cost of a particular decision. If we are talking financial, look ahead at any potential cost that could come out of the decision at hand. For example, if you want to open an online store, look into platform costs (are you thinking Etsy? Or build your own site?), and any membership or monthly fees associated with that. Then look into processing fees that platform would require, (is there a credit card processing fee to accept payments? Does the platform you chose take a cut of profits?). Check out tax and reporting requirements, and any initial costs associated with startup, such as inventory stock for example. If your store also has a physical presence, factor in rent, utilities, and other expenses associated with a storefront.
At this stage in the process, you want to imagine every eventuality, and come up with a number. That is your risk level, should everything go south. You can do this with other risk factors too, time for example. For someone opening an online store, aside from the money invested, do they have time to fulfill orders and get them shipped out in time? Calculate how long it takes you from receipt of order to shipment of product. Estimate how many orders you can accept a week based on that time. This is your level of risk you are willing to accept with regards to time.
You get the idea. For entrepreneurs, a risk assessment is done with regards to financials, but any risk can be calculated. They must figure out what level of risk is required if you jump into a project. Then make sure they are fully educated and willing to move forward. Establish a risk threshold BEFORE you jump in so that you don’t end up further in the hole than you can recover from. Have a recovery plan in place. These are the habits of successful entrepreneurs.
So why bother doing any of this?
The reason for putting together this report for yourself is simple. As a well-informed entrepreneur, you will make better decisions, accurately identify and plan for goals, and moderate losses. This allows you to move forward in the chess game of entrepreneurship making the best strategic moves possible.
Written by Emily Dominguez