How do entrepreneurs take risks in starting a business?

Experienced business owners will rarely take risks blindly. Instead, they will make calculated decisions to benefit the business or capitalise on an opportunity. This article will look at how entrepreneurs take risks when starting a business and how you too can get into this entrepreneurial mindset:

• What are business risks?
• Why is taking risks necessary?
• What types of business risks do entrepreneurs face?
• How to take calculated risks as an entrepreneur?

Risk is a term used in business that describes decisions that have elements of uncertainty about the result. 

Risks are an essential part of being an entrepreneur. You may have already taken some calculated risks to set up your business, such as giving up a secure job or putting up your own money when starting the venture. Entrepreneurs may not always be comfortable making potentially risky decisions, but they need to regularly consider risks (both small and large) as the business grows.

There are a few reasons why it’s a wise business decision to take risks sometimes.

Not every risk you take will pay off, no matter how thoroughly researched and well planned it was. But with every risk you take, there is a chance to learn from what happens.

Entrepreneurs must learn to look on the bright side, even if a risk doesn’t work out in their favour. Remaining curious about their choices allows them to look deeper to see what could have been done better or differently next time they take a risk.

While risk-taking might be nerve-wracking, entrepreneurs should use risks to develop themselves as business owners.

Entrepreneurs who are willing to take risks have an advantage over their competitors because they are ready to move with ever-changing customer demands. Trying a product or service before anyone else identifies the opportunity is risky, but if you keep your finger on the pulse of what your target audience needs and wants, doing something ‘new’ before anyone else could pay off. 

All opportunities come with a certain level of risk because the opportunity presents a new way of doing things that no one has tried before. Many bigger businesses shy away from risk because they will answer to a board of stakeholders, which means less competition for any brave small companies who are willing to take that leap to try new things.

On a more personal level, no entrepreneur wants to look back and wonder ‘what if?’. Many business owners have credited their success to following their instincts in a risky decision. When looking back, you could regret not trying something, but you may not regret having given it a go, whatever the result.

In every decision, there will be risk factors. Here are some of the types of risks entrepreneurs may come across when starting a business.

Positive cash flow is vital to running a business and paying regular expenses such as contracts, bills, or suppliers. Taking business risks will usually involve worries about maintaining cash flow because risks can potentially jeopardise the safety of your financial obligations.

When doing your financial planning at the start of your business venture, try to keep some money aside to act as a buffer for taking risks. A safety net like this means you can adapt as the decision plays out and have spare cash to continue your usual operations. 

Market risks refer to changes in the sector and your ability to change and adapt. 

The pandemic is an excellent example of how market risk played out for many businesses, like restaurants and cafes. Shrewd business owners were able to pivot with the state of the industry, and many food businesses shifted to takeaway service to accommodate customer needs.

Will the risks associated with a business decision affect your credibility amongst your customers or peers? Or will damage to your reputation change your ability to keep your service running smoothly? Decide if the risk goes against what you are known for amongst your audience. For example, if you publicly support climate change activism but choose a new shipping method that impacts the environment, your customers may no longer trust you and sales could drop.

Technology risks are when your security or systems are compromised. For example, you might decide to host your eCommerce website on a new CMS (content management system). Making a move without appropriate protection could leave your website vulnerable to being hacked, and then your site will be unable to generate sales. Risks such as this should be carefully considered and carried out by a professional team where possible.

To take risks, you must weigh up the available information to arrive at an informed decision. Don’t dodge opportunities because you are afraid of the results, instead work to become a calculated risk-taker who examines the landscape before diving in.

You can find ways to reduce risk by developing plans. Here are some steps you should follow to make calculated risks:

• Identify risk. Set out the possible results for all scenarios, and note which things you do and don’t have control over. Examining all possibilities will help you when weighing up the decision.
• Create steps. Creating a step-by-step guide that will plot your moves to complete the project and navigate risks as the decision pans out. Your guide can help you spot any financial, technology, market or reputational risks before they happen.
• Document the decision. Write a short report on the decision and the risks involved. Documenting the decision-making process will allow you to look back, learn and grow as a business owner, whether the risk was successful or not.

You don’t have to take risks when it comes to your bookkeeping. The Countingup business current account makes it easy to manage all your financial data in one simple app. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes, which could save you valuable time when you’re starting your new business.

You’ll receive real-time insights into your cash flow, profit and loss reports, tax estimates, and the ability to create invoices in seconds. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward.

Find out more here.