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When someone decides to pursue entrepreneurship, they understand risk-taking comes with the territory. More often than not, you’re putting your career trajectory, financial future and mental well-being on the line in order to pursue your dream of running your own business.
Just as risk-taking is synonymous with entrepreneurship, so is courage. Entrepreneurs are often adventurous enough to be in charge of their own destiny and find success. While that bold approach is admirable, you’ll need something more if you’re going to find success as an entrepreneur. Just like every entrepreneur needs a bookkeeping program for managing money, similarly, every entrepreneur needs a plan for managing risk.
To be a successful entrepreneur, you must be prepared for the risks associated with starting and running your own business. Even if you have no plans to start your own business, intrapreneurs must also have a plan for managing risks. Just like keeping records is important for the success of your business, it’s imperative to have strategies in place to manage risks.
Why Risk Management Matters
If you’ve decided to pursue entrepreneurship, you both understand and accept the fact that, in the pursuit of potential profits, you will need to take risks. Medium contributor and businessman Keith Krach cautions entrepreneurs from trying to avoid risk entirely. According to Krach, some risk is “inevitable, necessary, and—when well-managed—beneficial in the long run.”
Of course, that doesn’t mean you should welcome risk with open arms. There are certain risks entrepreneurs should strive to prevent. But rather than trying to avoid risk entirely, entrepreneurs must cultivate a mindset for risk management. By putting a well-thought-out approach into practice, you can mitigate uncertainty in the market and reduce unpredictable variables in your business.
It should come as no surprise that entrepreneurship involves uncertainty and unpredictability. However, rather than allowing risk to overwhelm you or—perhaps, worse—disregarding it entirely, it’s important to understand that risk is also an opportunity and can sometimes be an opportunity for malicious actors. For example, if you’re an accountant or your business uses one, it’s important to know that hackers target accountants because of the amount and types of data they handle and understand what types of protected client information they’re trying to steal. You just have to know how to protect your data.
But the most successful entrepreneurs aren’t afraid to pursue risky opportunities where others are. To both identify opportunities and manage risk, Krach implores entrepreneurs to do research. Such research may include evaluating current market trends and analyzing similar businesses, according to Entrepreneur. Assessing your personal financial situation is also crucial. This research will open your eyes to potential risks.
As you’re doing research, Entrepreneur contributor Joel Trammel advocates for weighing the chances properly. The basic principle of risk management is to look for opportunities where, if you fall short, you only lose a certain value. On the flip side, if the venture succeeds, you could stand to gain 10 times as much. Thorough market research will help you recognize such opportunities and help you establish a better frame of reference for risk as it applies to your industry.
Strategies for Managing Risks
Market research is one of the best strategies for managing risks and for identifying growth opportunities. The more you know about your industry and customers, the better equipped you will be to determine worthwhile risks and mitigate potentially damaging ones, especially as a new entrepreneur. Krach, citing a Halle Institute for Economic Research study, noted that entrepreneurs often start out with a conservative approach but gain tolerance for risk-taking as they progress in their careers.
Wherever you are in your career as an entrepreneur, knowledge about your industry can give you the confidence for necessary risk-taking and help you determine real-world strategies for managing risk.
With that knowledge, you can reduce the risk of security breaches with strong passwords, encrypted files and restricting account access. You may even want to consider pursuing or employing someone with a CompTIA Security+ IT certification to help manage the risk of being hacked. Incorporating such a valuable certification into your business is a solid strategy for managing risk.
In a different area of your business, creating and maintaining accurate business records is another strategy for managing risk. Doing so will keep you informed and up to date about your business’ financial situation. Good records will help you monitor the progress of your business. This helps you to manage risk since you can see whether or not your business is improving and help you assess where to make changes.
When you’re running a business, financial missteps like skipping tax payments and ignoring cash flow issues opens your operation up to a myriad of risks including going into debt, trouble with the IRS and, ultimately, the downfall of your business. Proper bookkeeping can manage such risks and increase the likelihood of business success.
Mindset for Risk Management
As you progress in your career, every decision you make will bring some form of risk and, thus, offer valuable experience. Trammel writes that learning to accept and embrace the uncertainty is one of the keys to managing risks. However, blind optimism will stunt an entrepreneur’s success. Krach reminds entrepreneurs that simply hoping that a company is on its way toward sustainable growth and success is not enough.
Instead of just hoping everything will turn out all right, successful entrepreneurs constantly educate themselves and regularly conduct market research in order to manage and mitigate risk. Krach warns successful entrepreneurs against becoming complacent. He writes that finding a balance between organic growth and reckless expansion is key to managing risks as an entrepreneur.
About Beau Peters