For many entrepreneurs, a sense of optimism and promise accompanies the launch of a new business. However, an overabundance of enthusiasm can set business owners up for disappointment later on. This is because a lot of first-time entrepreneurs fail to recognize and address the risks that can threaten a startup.
If you’re in the process of starting a small business, keep an eye out for these five commonly overlooked startup risks.
No. 1: Lack of Funding
Gaining access to funds can be nearly impossible for companies just starting up because they lack a business credit history. Traditional lenders and investors tend to shy away from businesses that can’t demonstrate a record of responsible financial behavior. Many new business owners therefore tap into alternative funding sources such as personal savings or loans from family.
And funding the launch of the business is just half the battle: entrepreneurs must also think about maintaining cash flow to keep the company up and running. Make sure you’ve lined up the financial resources to give your new business a fighting chance to succeed.
No. 2: Liability
One of the biggest risks for a new business owner is personal liability in the event that the company is sued. A single lawsuit can result in the potential loss of not only the business itself but also your personal savings and other assets. As a result, purchasing a business liability insurance policy is often a smart move.
A business’s structure also has implications for how liability is assessed. For example, operating as a limited liability company, or LLC, can often shield a business owner’s personal assets in the event of a lawsuit. As you might expect, the best time to learn about business structures is before you’ve opened your doors.
No. 3: Lack of Planning
Daydreaming about success can provide some inspiration to business owners, but it’s no substitute for a business plan. A well-researched strategy is essential for guidance during this critical time (and most reputable investors will require it).
You should be able to identify your company’s core goals, primary challenges, growth strategy, and more. Writing a business plan means removing the rose-colored glasses for an honest look at the marketplace. If you don’t like what you see, it may mean the idea isn’t viable.
No. 4: Strained Relationships
Starting a business demands a lot of time and attention, and as a result, your personal relationships can deteriorate or even fall apart completely if not given proper care. To make everything work, entrepreneurs need to be able to juggle both their business and their relationships – or risk losing one or both in the process.
Decide if you have time to devote to a new business. Getting married soon, or expecting a baby in nine months? Take stock of your priorities in order to determine whether or not this is the right time to dive into a new business venture.
No. 5: Unsustainable Business Growth
Rapid business growth may seem like a dream come true. So long as expansion is fueled by rising revenue, this can be very exciting. Unfortunately, inexperienced business owners may hire too many employees, purchase excess inventory, or overextend themselves in other ways.
Business growth must be sustained by customer demand. Rapid expansion during a hot streak can leave you underfunded when things cool off, so it’s important to keep your finger on the pulse of the market. Seasonal businesses must be especially sensitive to the ebb and flow of sales.
Starting a business can be incredibly challenging, and the above is by no means a complete list of all the things that can go wrong on the road to success. Remember that being the boss comes with a wide range of responsibilities, and navigating potential threats is an important part of building a lasting company.
Photo Credit: malisunshine, Twenty20