How to determine the risks of business and mitigate their impact ?
Assessing the grounds for investing, each specialist must carefully examine business risks, this section is an essential part of any business plan. The risks are hidden in every business. Entrepreneurial risk is associated with investing in work that occurs under uncertain conditions.
What are the uncertain conditions of a new business?
Any entrepreneur is an optimist who believes in the implementation of his idea. He believes in the profitability of business and considers his idea the most necessary and the best thing. But the reality is cruel, a great number of entrepreneurs became frustrated when they started their own business and faced the first problems. Market is the first thing any business deals with. Market is represented by the buyers who know what they need and how much they are going to pay for a particular product or service. It is the wrong assessment of the market that causes the informational risk which is perhaps the most important one.
Competition is also an important business risk. Even if it is absent at the time of launching business, it will definitely appear as soon as the sales of product or service start. Risk of competition always means a loss of income and profit.
Personnel is another problem. Any company needs highly qualified specialists to create new products. These people can create a similar business, if the funds are available. Can you share your business secrets with the highly skilled professionals? The staff may become a reason of bankruptcy. If the staff does not have sufficient qualifications, it will not contribute to the development of the enterprise. Time and money are needed to train the staff properly.
How to assess existing business risks?
It is possible to quantify the risk using expert assessments. Experts can assess the significance of the risk using a number of specific indicators. What is the risk indicator? In fact, nothing, if only it is not compared to the indicators of the other startups or existing businesses.
Calculation of losses is another method of risk assessment. It’s easy to calculate it, because the losses are money the enterprise loses for various reasons.
The third option is to estimate risks using cash flow discounting.