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As more Americans embark on the path to entrepreneurship, it’s important for business owners to learn as much as they can about the risks that they may face on their journey. According to the Small Business Association, about 30% of new businesses fail in their first year and 50% of new businesses fail during their first five years. By getting a better understanding of some of the challenges that confront them, business owners can find creative and effective ways of overcoming these risks.

 

Unclear Cash Flow

Many business owners have great marketing skills and an entrepreneurial spirit, but may be somewhat lacking in their accounting abilities. Yet it is equally as important for them to become experts at keeping track of their business’ finances if they want it to succeed.

Cashflow is the lifeblood of a business. It allows a company to purchase inventory, pay employees, cover bills and more. Without a clear picture of a company’s cashflow, it can be hard to accurately understand its financial health and the direction it’s headed in. One moment everything may seem fine, and the next a few invoices went unpaid and all operations are stopped abruptly.

In fact, many companies fail simply because they run out of enough cash to cover basic business expenses. Preferred CFO explains that by accurately keeping track of all the cash going in and out of a business, it’s possible to help it avoid an untimely end.

 

Not Being Totally Covered

Accidents and other unfortunate occurrences happen when you least expected, and without proper coverage, your business could find itself in really hot water. Our society has become a little too lawsuit happy, and a single disgruntled customer or employee with enough perceived motive can cause a whole lot of legal trouble for your burgeoning enterprise. Legally Mine explains that tor small businesses in the US, the average total cost of employment-related claims that resulted in a defense and settlement payment is $125,000. That doesn’t even include all the customer-initiated lawsuits and other liability issues.

Having the right insurance policies for your line of business can give you the peace of mind that no matter what does happen, it won’t cripple the company you’ve worked so hard to grow.

 

Taking on Too Much Debt

Even though qualifying for your first business loan may seem like a big milestone for your company, never take a loan that you don’t actually need. C2FO explains that one of the biggest risks to a business is taking on too much debt, as part of your much-needed cash flow will be going to making your monthly principal and interest payments. If you do need money, borrow only what’s necessary.

Avoiding these financial risks will help your company grow and give you the ability to scale your business successfully. While it’s impossible to run a business while being completely risk-averse, an intelligent entrepreneur will always weigh the risks and do whatever is possible to mitigate them as much as possible. After all, too much risk will drive down profits in the long run.

 

Being the most informed business leader you can be doesn't mean you'll always have the answers. Talk to an expert from Alliance today about your business goals and what risks you might be opening yourself up to now or in the future.



Posted 12:41 AM

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