Own a Business? 4 Things You Need to Do to Stay Ahead of Financial Risk

Saturday, October 28, 2017, 6:00 PM | Leave Comment

Owning a business involves a substantial increase in the amount of work you do to earn your income.

If you are an employee, you make the product, provide the service or just do the job your employer requires of you. If you own the business, you must see to it that production or service is completed while managing customers, vendors, material suppliers, accounting, payroll and more.

Financial risk is always looming, and here are four things you need to do to avoid being surprised or trapped by it.

Own a Business 4 Things You Need to Do to Stay Ahead of Financial Risk

  1. Control Inventory and Resources

    Most businesses today operate on a slim margin of profit as they endeavor to maintain a level of competitiveness in crowded marketplaces.

    Having too much of your money tied up in inventory, raw materials, large tangible assets and other such revenue eaters can dry up the liquid capital you need to stay afloat in lean times.

    Modern companies utilize algorithms to manage resources to have enough to meet business demands but not have a fortune in cash tied up in resources to be used in the future. Each business needs to control resources based on seasonal or other variables. If you have reliable suppliers, you can reduce the amount of investment you have in materials, inventory or other resources, and resupply as needed.

  2. Know the Credit Risk of Companies and Clients

    Two things can put you out of business overnight, and they are relying on one major client to support your company and reliance on a single supply source for your product, raw materials or other resources.

    You cannot rely on the credit worthiness predictors that companies use when extending credit to regular consumers.

    If you deal with publicly traded companies as clients or resource providers, you should use a tracking service, like CreditRiskMonitor, to keep track of their real financial health.

    Keep in mind that even companies that are about to declare bankruptcy or are in financial difficulty often pay their bills on time.

    If you have a customer that does not pay his bills, you would not extend credit. However, you may have a raw material supplier or client that does pay its bills but is about to close its doors.

    Know the true financial health of both suppliers and major clients.

  3. Keep Your Long Term Goal in Sight

    If you are providing a retail product that is growing in popularity, you are going to be approached by major retailers to negotiate a deal to get shelf space at their stores. Their offers can be intimidating.

    Some major retailers will tell you what they will pay for each piece, what you must supply, changes you must make for the product to be on their shelves, and more.

    Their deals may also include a requirement for you to expand production facilities, hire more employees, and keep to an extremely strict production schedule.

    The lure of profit potential may seem irresistible, but you have to keep in mind how much control of your company you are going to relinquish to a single client.

    Be sure to know in concrete terms the longevity of agreement, future product growth to sustain expansion, and other details before signing on the dotted line.

    There can be big rewards as well as major risks when relying so heavily on one client making it very helpful to benchmark risky industries by sector or country before you get involved.

  4. Manage Growth Risks

    The bakery that is a huge success in one location could be a flop in another. The same goes for any type of business from a law firm to a grocery store.

    Expansion in the form of satellite offices, additional retail locations or even franchising may be potential growth avenues to explore, but you need to manage the risks to keep your core business intact.

    Chain retail environments means better performing stores can help keep stores that are not as profitable remain open, but early growth is fraught with major risks you need to consider.

    Though you may intimately know your business in the location you started, you may not know all the details of establishing another part of your business in a different location.

    Also, keep in mind the rapid growth of the biggest online retailer in the world and the affect it could have on your brick and mortar location growth.

    Getting assistance from professional consultants who know the area you want to expand into can help you better decide when, where and how to expand at the lowest level of risk.

    Politicians may court you with low or no-tax offers to open in their district, but be sure to know fully what you are getting into. No taxes is no help if there is no profit.

As a business owner you have to wear many hats and be savvy about many subjects that you may not have a considerable amount of experience in. Never be afraid to reach out for the assistance of experts in the field to help you stay ahead of financial risk.

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