financial risk analysis

Owning and operating your own business is no small feat. While the United States economy thrives on small business, there is a lot of risk involved. One out of 4 businesses fail after their first year. Only half of businesses are still in operations after their fifth year.

Preparing and educating yourself before taking any major steps towards opening a new business is the best way to avoid financial surprises and operational mishaps, both of which can be deadly for a small business.

To give yourself a good shot at making it, be sure to do these five things before taking on the challenge:

    1. Investigate your industry: Do you have a specific product or service in mind? If so, taking the time to research other businesses in the industry and what has worked well can give you an idea of what you’re aiming for. Knowing the ins and outs of your industry will give you a leg-up on competition. This will also help with your financial risk analysis, which comes later.


    1. Feel out the competition: Speaking of competition, there’s plenty of it. Most markets are choc full of business owners trying to do the same thing you are. However, finding an edge for your product or service will set you apart from your competition. Visit storefronts or websites of those who offer the same product or service. Get familiar with what you like and don’t like as a potential customer. Let this be a guide when working on your business model.


    1. Second-guess yourself: 5.2% of the businesses that failed between 2013 and 2014 did so because of inadequate cash flow or sales. You may think you know everything it takes but chances are, you don’t. Only by second-guessing yourself can you truly get a grasp on where your knowledge and know-how is lacking. Too many business owners believe their product or service is going to automatically translate into strong profits. This naivete can hurt your chances of success.


    1. Figure out funding: Are you going to apply for a business loan or use your own money? One thing many entrepreneurs find out only after they’ve already undertaken business ownership is the intimidating logistics of running a company. There is budgeting and planning software, business valuation software, industry average financial ratios, financial risk analysis, business profitability ratios and much more to consider. While they may seem presumptuous, these softwares can help businesses cut their costs drastically, leading to an increase in profits. Financial risk analysis is an important step in being as efficient and profitable as possible.


  1. Get a grasp on marketing strategies and industry logistics. Handling a marketing campaign for a business while running it isn’t an easy task. While some new business owners decide to outsource their marketing, being personally involved in the campaign is important. You’ll want to be tapped in to every aspect of your business, though by varying degrees.

Are you starting your own business? How is it going?