There are many risks with starting a new business, but the main ones could be summed up as follows:
- You run the risk of losing any money you put into the business to get it started. If you have borrowed this money from a bank you might spend years trying to repay it even after your business has closed.
- You run the risk of still having to pay bills after the business has closed. For example, if you sign a 5 year lease with a landlord and the business closes after one year, you may well have to pay the rent yourself for the next four years, even if you are not using the premises any more.
- You can be exposed to extra costs if you close. For example staff retrenchment packages and tax penalties for late payments.
- You might have to give up your existing job and then struggle to find a new one if your business fails and you need income again.
- If you open accounts for your business and your business fails, you might end up still having to pay them from your own funds – which may not exist.
- Family and friends relationships may suffer as you put in excessive hours to make your business work and business stress can affect your home and social life.
- Your health may suffer from long working hours and continuous stress and worry.
- While you are busy trying to be an entrepreneur your friends and colleagues get ahead of you in their careers in the corporate business world. You might have to start all over if you go back to being an employee.
Its not really possible to eliminate all risk from any business venture, but you should certainly look at trying to mitigate or limit as much risk as possible. Here are some suggestions:
- Arm yourself with information about term contracts and sureties. You need to be aware of what these two contracts cam mean and in fact you want to try and avoid them if at all possible.
- This is not the time to start employing anyone. Employees are a huge responsibility under South African law. They are expensive to keep and expensive to get rid of. They can also be a huge source of stress and frustration. Yes, sure a good employee can be wonderful and be hugely profitable for a business, but this page is about limiting business risk and employees are a significant risk, Save becoming an employer for much later in your business cycle.
- Start off small and test your product or service with just a few customers and with minimal setup costs. This way you can pick up mistakes early on before you spend too much money on something that does not sell well.
- Draw up a business plan. This does not have to be anything fancy or professional but you do need to give some detailed thought to how your business will work, before you start spending money.
- Debt might be an easy way for some to get money to start a business, but if it fails the repayments can be extremely difficult to make from your personal funds. Rather start of slowly or involve business partners who can invest. They take the risk on losing money, but you will also have to share profits with them. At least you shouldn’t have loans to pay off.
- Have a plan in place for if the business fails. Have a written plan on what you would do if you business fails in 6 months or a years time. This is not negativity, this is a process for understanding how much risk you are prepared to take on.
- Consider a small business support incubator, which allows you to start your business slowly, reduces your startup costs and takes the time burden off your shoulders when starting.