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5 Common Risks When Starting a Business
March 3, 2023
Starting your own business is an exciting time as you chase your dreams of becoming an entrepreneur. Many entrepreneurs are risk-takers by nature, who have to embrace the unknown as they launch a new product or service into their industry.
When starting a new business, you should have plenty to look forward to, from being your own boss to trying new things. But there are several risks to be aware of that can impact your chances of success. Here, we’ll cover some of the risks when starting a business and how to minimise them.
Common risks associated with starting a new business
If you’re considering starting a business, it’s important that you prepare for potential risks that can threaten your business’ success. Of course, some risks are difficult to avoid, such as economic decline and market demand. But if you can find ways to mitigate potential risks, this can stand your business in good stead.
Here are some of the most common risks that affect new businesses and how to tackle them:
Financial risks when starting a new business
The excitement of starting a new business can make it easy to turn a blind eye to the financial risks associated with a startup. Being aware of these financial risks can help you make the best financial decisions for your company, and help you reap the rewards.
To increase your profitability, you’ll need a strategy to grow your sales and generate revenue. You may be relying on investors to get your business off the ground, and they’ll be expecting a return on their investment. So, it’s important that you have a plan in place to generate revenue and make a profit. Offering promotions to boost volumes of sales, and developing new products or service lines can be great ways to increase your profits and ensure you’re in a comfortable financial position.
To get your business up and running, you may choose to take out a small loan to tide you over until your profits start soaring. There are several types of loans and grants available to small businesses in the UK. In terms of grants, the government offers a variety of financial support options for new businesses that need financial aid.
Another risk to be aware of is sustaining your business over time. Making sure you have a financial plan in place that shows income projections, expected return for investors and how much cash you’ll need to break even can offer you peace of mind. Without planning ahead you could risk financial strain or even bankruptcy – so it’s vital that you have a roadmap in place to ensure financial security.
Regulatory risks for business owners to consider
When starting a business, it’s important that you meet the standards of your industry and any compliance requirements. Here are just some of the regulatory requirements for business owners to consider:
- Industry regulations: Depending on the industry you work in, there may be industry-specific regulations that you must adhere to. For example, if you’re setting up a business in the finance sector, you will need to be regulated by the Financial Conduct Authority (FCA) who have strict guidelines you must follow.
- Finance regulations: There are business compliance rules you must follow around tax, payroll, record-keeping and accounting, as well as dealing with HMRC. It’s important that you follow these regulations carefully to avoid being penalised.
- Workers rights: There are several workers rights that you must follow, but the main three include national minimum wage (and being protected against unlawful deductions of pay), statutory minimum level of paid holiday and rest breaks, and protection against unlawful discrimination, unfair dismissal and unfair treatment for being a part-time worker.
- Health and safety: There are several regulations around health and safety at work, under the Health and Safety at Work Act 1974. The act requires businesses to ensure staff have adequate health and safety training, a safe work environment that is properly maintained and adequate welfare provisions for staff at work.
- GDPR: The General Data Protection Regulation came into effect in 2018 to provide a legal framework for companies to keep everyone’s personal data safe. This requires businesses to have strong data protection processes in place for handling and storing personal information.
Operational risks to consider
Another potential risk to be aware of when starting a business is what are known as operational risks. These include processes, systems or events that disrupt business operations. If not handled correctly, operational risks can threaten business success. Some examples of operational risks you need to be aware of include:
- Fraud: Whether it be internal fraud where employees misappropriate company resources, or external fraud where independent parties outside your business attempt a cyberattack, bribery or theft – fraud can seriously affect your business’ livelihood.
- Technology: Deficiencies or failures in your computer systems or software.
- Safety: Violating or the risk of violating workplace safety measures, either physically or mentally.
- Natural disasters: Harsh weather conditions, fire or other disasters that can put physical assets at risk, leaving it difficult for employees to perform their daily tasks.
Reputation management - how do I do it?
Your brand or company’s reputation can undoubtedly influence your customers’ decision to purchase. So having the unexpected strike can cause damage to your business’ reputation, leading to a decline in sales and profitability. Ensuring you have a plan in place to maintain your reputation can help mitigate the risk of a bad scenario occurring and your reputation being at stake.
Reputation management is a way for you to monitor how your customers perceive your business and take the necessary steps to improve your brand’s image. Often, this is centred around monitoring your company’s reputation in reviews and through social media like Instagram. But there are other steps you can take such as:
- Understand your values: Know what your company stands for and make this clear to your employees, so they can ensure these standards are sustained. Make sure each member of staff knows what your company’s message is and how to reflect it to help maintain your brand’s reputation.
- High customer service: Your customer service is the key to making a lasting impression on your customers, so ensure that it’s high quality. Great customer service increases customer loyalty, leads to referrals and helps maintain a good reputation of your brand and its values.
- Plan for bad scenarios: Make sure you have a plan in place of how to deal with a potential bad scenario. Brainstorm potential scenarios that could damage the public’s perception of your business and how you would take action. For example, if a customer were to complain about the cleanliness of your premises, this would indicate that the standards need to improve.
Business protection - keep your business safe
You’ve put a lot of time, money and effort into bringing your business to life, so it’s only right that you’ll want to protect it. Here are some ways you can help to keep your business safe for long-term success:
- Cybersecurity: Whether your business runs from just one computer or all members of staff work from individual devices, it’s important to ensure all technology is protected against cyberattacks. Not only do you need to secure your business’ data and financial information, you also need to adhere to GDPR by protecting your customers’ and employees’ data.
- Outsourcing: If you need to outsource certain areas of your business to another company, you’ll need to ensure you aren’t liable for their misconduct.
- Business insurance: While you may think you’ll never need to use it, business insurance is there to protect you against the unexpected. It will protect your business financially if you were to get sued by a third party, as well as additional extras you can add to your policy that are tailored to your industry. With the right cover, you can enjoy the day-to-day of your job with peace of mind, knowing you’ll have a helping hand available should disaster strike.
Get a quote for your small business with Protectivity
Here at Protectivity, we specialise in business insurance for small businesses across various industries. Our tailored business insurance can protect you against the unexpected, so you can embrace your new challenge to the fullest. Perhaps you’re a personal trainers needing personal trainer insurance who is starting their own business. Our affordable business cover can give you the peace of mind you need to open your new business with confidence. Get a quote for your small business insurance today.
