6 Ways to Mitigate Risks for Entrepreneurs
6 Ways to Mitigate Risks for Entrepreneurs
One characteristic of a good entrepreneur is their ability to accurately understand and a manage risk. However, many fail in this area and it’s one of the major reasons why many startups fail within the first year. To help you not become part of this statistic, here are 6 ways to mitigate risks for entrepreneurs you can apply.
Before we proceed, let us understand what risk is and what is risk management. A risk is a possibility of an occurrence that can happen at a future moment resulting to damage, loss, injury or death.
On the other hand, according to Atlantic International University business risk management involves identifying, analyzing, and taking steps to reduce or eliminate the exposures to loss faced by an organization or individual.
Let’s now look at the 6 ways to mitigate risks for entrepreneurs you can apply
- Elimination – one of the surefire ways of mitigating a risk in a business is elimination. After identifying what the risks you are exposed to, you need to look for ways to eliminate them. For example, you know that your raw materials are prone to contamination which can lead to your products being contaminated and therefore a health hazard to consumers. You can opt to store them in a clean place like a cold room, freezer or fridge.
- Reduction– some risk factors might not be possible for them to be eliminated. In such a case, the next course of action should be to reduce the chances of the risk occurring. Let’s say your employees are prone to injuries while at work especially if you run a factory where machines are running throughout. Elimination might not be possible because it might require shutting down the machines and a result no production. In this case you find ways of reducing the risk.
Considering this, reducing the chances of an injury/accident occurring can be done by putting in place reliable safety measures like good maintenance of machines, providing safety gear to operators, ensuring workers are well trained on how to operate the machines, restricting workers from operating the machines while tired, sick or under the influence of a drug etc. You can also train them on safety measures to take while in the factory premises like first aid training.
- Insurance/Transferring the risk– this is where you transfer the costs of the damage as a result of the risk happening to an insurance company. Instead of you or your business incurring the loss, you can have an insurance company take care of it. An insurance takes you back to your original place before the damage occurred. For example, if you deal with flammable substances, you can transfer the loss of the damage should fire arise to an insurance company. The insurance company incurs the loss on your behalf.
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- Acceptance– you have to accept that there are always chances of risks occurring from different scenarios and it might not be economically possible to insure against, reduce or eliminate all of them. You therefore have to accept in entrepreneurship it’s all about risks despite all the precautionary measures put in place. Knowing this will help you focus on the possibilities and targets but not what bad might things happen.
- Weighing the chances– when venturing into a new project as an entrepreneur you need to measure the benefits and losses of starting a project as compared to not doing it. A good example is where you see that introducing a new line of products might cost you this much and if they don’t succeed in the market you will incur a loss but on the other hand if they do, the benefits are ten times more worth it. You can also consider the benefits of introducing a new product and not doing it in which case the capital injected remains as disposable cash or business operations cash. If you invest in a new product and it succeeds, you will reap the rewards but if it fails you will incur the loss.
- Identifying and pursuing opportunities others can’t see– in the course of doing business, you might find that there is a business opportunity others are not seeing. In this case you can opt to risk investing some capital to exploit this opportunity. For example, printing businesses opt to import printing papers from India and/or South Africa and when there is a shortage it takes time to get replenishment. You can decide to be make them locally by importing the raw materials instead.
In this case you are not only reducing the risk of incurring losses when there are no available papers for print work for your own business but also for other business. This has been a realistic occurrence over the last few months in Kenya because of the prevailing political uncertainty and many businesses that rely on imported raw materials have been affected.
From the above discussion on 6 ways to mitigate risks for entrepreneurs you can apply, you are in a better situation to deal with risks involved in entrepreneurship.
However, remember one of the best ways to deal with risks is by insuring against them. Our Biashara Insurance Agency is the ideal solution for all your insurance needs. We work towards getting your investment and assets the best cover at most affordable rates. Get in touch with us today for a quote.