It can be hard to keep track of the many risks your business faces, but there are three major risks you should pay close attention to at all times. These risks can put your company out of business entirely if you’re not careful, so do your best to prevent them by following these tips on how to avoid the top 3 power risks in your business.
1) Under-estimating competition
Many new businesses make the mistake of focusing on what they can do, instead of what competitors are doing. This mistake is common because it’s easy for entrepreneurs to think their product or service is good enough and that there isn’t a competitor who will do better than them.
To avoid this risk, first, you need to look at your industry competitors. Do they have a similar business model? What are they selling? How are their margins? How much inventory do they hold at any given time? All these questions can help determine how well your company will compete with them.
One way you can stay ahead of your competition is by listening to them. In some industries, competitors share a lot of information. If you aren’t sure about how others are doing, reach out and ask them about their results, margins, and plans for expansion into new markets. Doing so will help provide valuable information that will help you keep pace with your competition.
In addition, before you launch your business, you should research similar businesses that are doing well. Look at their product offerings and customer service. Find out what people like and don’t like about them. Use these insights to steer clear of making mistakes that others have made in building their business model.
When you are thinking about setting up your own business, it’s easy to get lost in daydreams of success. However, before you launch your business, it’s important that you take a realistic look at your competition. Identify weaknesses and build strategies into your business model that can help propel you ahead of competitors. Once you’ve done so, you’ll be less likely to fall prey to one of the business’ most common risks—under-estimating competition.
2) Taking on too much debt
Businesses often use debt financing, such as a business loan, because they believe that it will help them grow faster. However, the risks of taking on too much debt are severe and can lead to financial disaster. One of the top three power risks in your business is taking on too much debt. Taking on too much debt can cause a lot of problems for your company which may include: unpaid wages for employees, missed payments with creditors or vendors, and even bankruptcy!
Being in this position makes it more difficult for you to keep your head above water and may mean that you will have to look at laying off some staff members or shutting down altogether.
When you decide to use debt financing, be sure that you do so conservatively. The risks of using debt financing can also affect your personal life as well as your professional life. There is no shame in being humble when it comes to making decisions about your business; just make sure that you plan out the right course of action and make calculated moves. The smartest decision for you and your business would be not to take on any debt unless absolutely necessary.
Once you have decided that debt financing is appropriate for your business, be sure to factor in the additional costs of debt financing. In other words, what would it cost you if your business fails and you can’t make any payments on your loans? You should plan out a worst-case scenario in which all of your income sources are lost and try to account for how much debt could potentially get you into financial trouble.
When you take on debt financing, make sure that your business can afford to pay it back. You should also be aware of all other costs and obligations that come with taking on debt financing. For example, do you have money available for maintenance or added costs? Does your facility have room for expansion? Debt financing can be a great asset to help a growing business reach its potential, but make sure that you carefully consider all other financial commitments before agreeing to any form of debt financing.
3) Poor financial planning
- Spending too much on marketing or not enough on production – No matter how great your product is, you won’t be able to sustain an operation if you are spending more money than you’re bringing in. Constantly monitoring costs and expenses is critical for surviving on tight margins.
- Losing key talent – You can’t beat someone with anyone else like them. When your company has a valuable individual leave, it can create a domino effect of bigger headaches that even worse budgets can’t fix quickly enough. Creating a good work environment will help avoid this but sometimes it’s unavoidable.
- Outsourcing to the wrong places – Manufacturing overseas may seem like an easy way to get products made at low cost but then what happens when there is a problem? If you’re depending on someone across the world who doesn’t speak your language, who you’ve never met, and who doesn’t care about your business, then it could take weeks before they’ll respond. Plus there are often quality issues associated with manufacturing overseas.
The best way to avoid these risks is through research and due diligence upfront so that when something does happen (and it inevitably will), you know what steps need to be taken as soon as possible.