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By Vishal
P. Rao A business owner is thoroughly responsible
for their own financial survival and possibly the financial
survival of their employees. Business owners, for the most
part, seem to be "risk takers", who really don't easily "go
with the flow". They are inventive and somewhat confident,
as just having their own business does mandate that they
possess these qualities.
However, the ability to live with risk is very much a
personal issue. Some business owners can live with more risk
than others and some can manage the risk better than others.
Having the ability to effectively manage risk is imperative
for a successful business venture. Therefore business owners
need to be able to effectively judge how much risk is
"acceptable" and which business ventures are inherently "too
risky" and therefore perhaps harmful to the business
overall.
While all businesses must grow and change continually in
order to survive, every time a business makes a decision to
expand or increase its offerings, a modicum of risk does
exist. Most businesses face risks when they incorporate new
offerings into their current ones, take on new employees,
when they change their marketing techniques sufficiently, or
when they expand into new areas of business above and beyond
the general core or "parent" business.
Each time a new project, venture or offering is added to a
business, "risk containment" should be employed. It is never
possible to eliminate all risks completely, but containing
risks to an acceptable level will enhance the experience and
keep the overall losses at an acceptable level, if failure
of the new venture or offering does occur.
Business owners need to assess the risk using the following
principles:
1. Is this risk necessary for the further development of the
business? If so, why?
2. Is this risk attainable for the business? If so, why?
3. Is this risk affordable for the business? If not, then it
shouldn't be done. A strict, realistic assessment of funds
available and a budget should be worked out before a
business embarks on any type of expansion or addition to its
present offerings.
4. Is the "timing" right for the new addition or venture?
Many times, if a business is experiencing a downward cycle
or other financially stressful barriers, expansions or
additions are best left for another period in the life of a
business.
Many business owners make one of two serious mistakes: they
either refuse to gamble at all, and don't therefore grow
their business appropriately, or they gamble too much,
exposing their business to such a high degree of risk that
eventually the business finds itself in financial
difficulties.
Example A: John has owned his own print shop for several
decades, during which time he has enjoyed much success. The
newest technologies, though, could increase John's clientele
and the speed at which he delivers his goods to existing
clients. John, though, is thoroughly risk aversive,
concerned about the expense of expenditures that would
follow incorporation of the latest technologies, and
therefore, John does not incorporate them. As a result, he
has lost some existing clients and many times fails to add
new ones, effectively hurting his bottom line.
Example B: Miriam owns her own real estate company and does
very well with it, employing ten people. Miriam feels the
need for new challenges however, and decides to buy several
investment properties herself. The properties she buys are
extremely expensive, and need much upkeep. In order to
purchase them, Miriam borrows "against" her existing
business, using that as collateral for the loans she must
acquire. Within mere months, Miriam experiences several
major repairs needed on each of the newly acquired
buildings. She then must borrow yet again to afford these,
and finds herself going deeper and deeper into debt. It
becomes a struggle finally, to even "hold onto" the original
business, as she now owes enormously to several creditors.
As you can see, John, is much too risk aversive, while
Miriam failed to take into consideration the many
difficulties that could occur with large-scale expansion of
this sort. Neither is correct in their assessment or
approach to risk management and each has hurt their own
businesses as a result.
The old adage, "Slow but steady, wins the race" really
applies significantly to business and appropriate risk
management within a business. Business owners should plan
thoroughly and weigh their risks completely before
proceeding with any new venture or expansion. However,
businesses also need "planned growth" throughout given
periods.
Business owners need to use their judgment wisely at all
times, and use it well, when considering appropriate risk
management techniques.
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Vishal P. Rao is the owner of
Home Based Business Opportunities
- One of Internet's leading website dedicated to starting,
managing and marketing a home based business.
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