Entrepreneurship is associated with various types of business risk. In this article we are going to share a few tips that will help first-time entrepreneurs to reduce business risk and turn their companies into secure and profitable enterprises.
Understand the risks
This is the first and foremost thing every first-time entrepreneur needs to do. Business risks can be divided into two categories:
- Internal risks– arise while company is functioning in a normal way. These risks can be forecasted and they are usually caused by three different factors: human factor (union strikes, employee’s fraudulent deeds, ineffective leadership, etc.), technological factor (sudden changes in production or delivery process) and physical factor (damage of company assets).
- External risks– are much less predictable and in most cases have something to do with global or nationwide economic or political events.
Surety represents a third-party guarantee that certain project will be finished in timely manner and in accordance to the signed contract. Surety bonds are mainly sold by companies specialized in giving surety to various types of projects, and depending on project’s worth and company’s finances surety agents can also require corporate and personal liability from contractors.
There are two major types of surety bonds, both of which are required in all American states. License bonds are required for opening various types of service businesses, and contractor bonds ensure separate projects mainly in construction industry.
Although their prime purpose is to protect obligees’ interests, surety bonds come with wide array of benefits for contractors as well. They protect them from capital claims and lawsuits and boost their reputation.
There are also other types of commercial surety bonds. Fidelity bonds for example, protect companies, their customers and business partners from employee theft and therefore reduce wide array of risks associated with human factors.
Specialized insurance policies
Standard insurance policies don’t protect businesses from many different niche-specific risks. That’s why one of the best ways to protect your venture is to purchase specialized insurance policy. Keep in mind that these policies are much more expensive, and that you need to do an elaborate research about possible risks that are common in your niche.
Insurance policies specialized for startups that run their business online demonstrate specialized insurance policy’s effectiveness in the best way, by protecting companies from hosting company’s bankruptcy and damages created by cyber attacks.
Know who you are dealing with
Always check your potential business partner’s background before signing a deal. There are several different checks you can conduct:
- Google check– type your potential business partner’s name in Google Search and add words like ’scam’, ’fraud’ or ’conman’. This way your will be able to find out if this person or company was associated with fraudulent activity in the past.
- Criminal check– Google Search check is useful, but it is neither accurate nor official. If you really want to check if the person or the company you are dealing with is associated with some fraudulent activities, conduct a paid criminal check. Since United States allows its citizens to publicly check almost all court documents, these checks can be done by various P.I agencies.
- Credit check– There are three major credit bureaus in United States and each one of those provides credit checks for individuals and corporate entities. For this check you will need a written permission from your potential business partner. If he/she doesn’t want to comply with that, you should think twice about signing the contract.
Even with all these risks, entrepreneurship is still much more relaxed and fulfilling than stressful 9 to 5 jobs. Ability to reduce risks comes with experience, so although starting your own company might sound risky at first, it is the only known way for you to climb up the ladder and create your own success story.