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Limiting Business Risks And Reaching For The Stars

May 19, 2008
Entrepreneurialism in business is the driving force behind success. While everyone may naturally associate entrepreneurialism with business, they are not necessarily linked concepts - a business person may not be an entrepreneur, while an entrepreneur might not be the finest example of entrepreneurialism in practice. Nevertheless it is critical to encourage this behaviour, for the health and well-being of the global economy.

Entrepreneurialism is all about taking risks. It's something of a cliché, but only because it's true. Without risks, business wouldn't succeed. Business wouldn't create jobs or pay wages. Without risk, business wouldn't get off the ground. That said, there's nothing in the entrepreneurialism handbook that says it isn't sensible to limit those risks as much as possible. In fact, limiting your risks in business is key if you want to gun for success.

For example, you can limit risk by the choice of business form you use. As a limited liability company, you can safeguard your personal assets against any company debts, allowing you to take more risks with fewer repercussions on behalf of your business. Short of fraud, or anything criminal, any activities that go awry might ruin your business, but they won't ruin you. However by trading in your own name, you are much more vulnerable should your business fail, and you could be personally risking your home, car and other assets against any business debts.

Likewise it is important to minimise risk on the financial side of your business. That means keeping a close eye on finances and cash flow, as well as maintaining a strict credit control policy to avoid too many bad debts and too much exposure to potential non-payment. Try to keep the money coming in and make a note of where and why it leaves - that way, you limit the risks of failing on a cash flow basis, which experts say is one of the most central reasons for new business failures.

Another particularly good way of limiting your exposure to risk in business is to strategically think about your business and its growth over the next five or ten year period. Grow your business only at a rate it can sustain and you will create a profitable, healthy environment in which your business might blossom and develop into something more substantial. Allow your business to stagnate, or pursue too violent a growth curve and you're creating a high-risk environment, in which your business might thrive or crumble with equal measure.

As a business person, whether or not you're brimming with entrepreneurialism, you shouldn't be afraid to limit your risk. You should be encouraged to take risks for the benefit of the economy and your own business success, but there's nothing to prevent a bit of common sense caution from helping to protect against the most serious causes of new business failure. Only if you can appreciate the risks and make alternative plans of action in case of failure can you be sure you're ready to do business with real money at stake.
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