Starting your own business can be a dream come true for many for everything that it brings from the sense of accomplishment to independence. Although the professional success — if it does materialise — is incomparable, the financial risks that you take when you own a business are significant.
Being realistic about the financial obligations, contingencies and risks of owning a business is a must to avoid massive losses — or even bankruptcy — if things don’t work out the way you expect. Remember, regardless to how you excel in your industry, running a business is completely a different story. You must be prepared not only to handle the technical side of it, but the entire operation financially to stay afloat.
If you’re considering starting a business, keep in mind the following financial points.
Research
Do a thorough research on the cost of the business you’re starting. Don’t rely only on others’ business studies or feedback from people who may be familiar with the business type. Instead, dig deep and get more tips from those who are involved in similar endeavours. Make a realistic estimate of the costs well ahead of taking a first step into the business.
Make sure that your research takes into consideration future changes and potential market swings. And always consider the worst case scenario. For example, if you think you won’t see profits for six months, you probably need to be sure that you’re covered for a year at least.
Insurance
You may want to keep costs low, but regardless to your strategy to accomplish this goal, don’t cut back on insurance. You will need protection for liability, assets, employees, etc. Although whether getting insurance or not isn’t negotiable, the insurance policy terms are. So go into the details and consult with insurance brokers and providers to see if you can tighten your premiums without impacting critical coverage areas.
Be sure that your insurance policy covers the specifics for your industry. For example, if you’re in the construction industry, you may need some employee safety coverage. In addition, get coverage for your equipment and any other major investments that you put in the business.
Credit
You probably won’t be splurging only your own savings on the new business. If you’re taking out a business loan, check out the available options. In many countries, there are government-sponsored schemes that help small businesses get started. Do your research to find out the best loan for your type of business. You may find that a small adjustment in your business designation or purpose can help you get better loan terms.
In all cases, you must research these loan types either independently or with the help of a trustworthy consultant. Don’t take the word of anyone who has an interest in getting you into a different, more expensive, loan for granted. In addition, make sure that you understand your loan payment in total, which include any additional fees and charges.
Have an exit strategy
Every business plan should have an exit strategy, which should help you avoid great losses or bankruptcy. If you’re serious about this business prospect, make sure that your business strategy is realistic and doable. Remember you’ve no control over many aspects that may influence your business, so it is a must that you handle you get out unscathed in case of a market crash or just if things don’t work out the way you expect.
Your exit strategy should leave you in a good place financially, with manageable debt. It remains your responsibility, however, to ensure that you know when you should use it. Although it is a hard decision to make once you have a business, it can be your way to avoid a financial disaster.
Rania Oteify, a former Gulf News Business Features Editor, is a Seattle-based editor.
