Are you planning to start a new business? It is a fact that there are risks associated with new businesses that you will have to face. Statistics show that the number of entrepreneurs that fail is more than the number of those who succeed. With that in mind, you need to be prepared to do things differently so your business can be among those that succeed. Most businesses fail because of financial problems that result from poor management. Here are six steps you can take to lower financial risk for your business.
Develop a Watertight Plan
After you have come up with a business idea, the next step is to develop a business plan. You must know how much capital you will invest in the business and how you will spend it. Also, you must carry out market research to find out whether your business idea is viable. This will help you decide whether your business idea has a chance of success. Write a good business plan which shows the market analysis together with cash flow analysis and financial projections. Have a clear financial goal with well-spelled time-lines that you expect to achieve them.
Though business insurance is a legal requirement, this is something you need not be forced to do. If anything, it benefits your business. You never know what calamity will strike tomorrow, so buying insurance is the only way to guarantee your business continuity. It's true that buying insurance costs money, but this is a sacrifice that's worth undertaking.
Diversify Your Income
You can not start a business today and expect it to start supporting your financial needs immediately. That's why you need other sources of income to rely on as your new business grows. The other sources of income will also act as a backup if your business cannot pick up sooner than you expected. They can protect you against going bankrupt.
Keep Good Financial Records
Many startups find it difficult to maintain proper financial records. One reason they don't keep good records is that they fear the cost of hiring an accountant. With no proper financial records, it becomes difficult to know the financial position of a business. Sometimes, the entrepreneur may end up overdrawing from your business or using money from other sources to support it. If you can't afford to employ an accountant, you can take some basic accounting classes and then use accounting software to keep your records. Alternatively, you can consider an SPV. But what is an SPV? This is a business venture with limited purpose. It separates the liabilities and protects the assets of the parent company. Financial records are also necessary for taxation. Failure to file your tax returns may lead to huge penalties and fines that will be detrimental to your business.
Have Quality Control Procedure In Place
Before you launch your product to the public, have a beta test or a test group, and get the customer feedback. You can then use the feedback to improve the products before you launch them on a large scale. Quality control is a continuous process, and it need not stop with the launch. Every time you produce a batch of items, take samples and test them for quality. This way, you'll ensure your products have a consistent quality that meets the market standards. Not only that, but it will also guarantee your financial stability because you'll be able to maintain your customers.
Once in a while, you may need loans to help your business grow, but you need to borrow prudently. Remember, loans are repaid with interests, so if you over-borrow, your bottom line will be harmed. To lower your financial risk, take loans only if you have to, and choose lenders with friendly loan terms. To enjoy those good terms, you must maintain a high credit score.
A high percentage of businesses collapse within the first year of their launch. By following the above tips, you can protect your startup against failure. What matters most is for you to be self-disciplined to respect your business plan to ensure you meet your financial goals. If you find any difficulty in implementing your business plan, don't shy away from hiring experts. The much you spend on these experts will benefit you in the long run.
Author Bio: Rayanne Morriss
Rayanne is currently working towards her BA from Oregon State University. She loves to write, read, travel, and paint. She enjoys finding new coffee shops with friends and expanding her cooking skills with her husband.
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