Tricky Business: Manage Your Structural And Internal Risk
No risk, no reward as they say. In all businesses, there will always be an element of risk. Small business owners and serial entrepreneurs can take this reality for what it is and still be outgoing and innovative.
However, you can limit their risk by taking greater control of your business’ structure.
First off, you need to decide whether you want your personal and professional finances to merge together (please note, we’re not experts on this topic so please ask your accountant for advice). Then consider the risk of the market you’re in (i.e., are you in a high-volatility prone industry such as short-term financials?)
Other risks are going to include your employees in some way (your HR department will keep you updated regarding employment laws). There are so many areas in which you are at risk in one way or another, so mitigating as much inherent risk as possible should be your first priority.
Living behind a barrier
As you may well know, around 70-80 percent of small businesses end up failing in the first five years of their existence. Many times, you see the owners filing for bankruptcy and having their personal lives changed forever. But this is most likely because they chose to go with a sole proprietorship or perhaps they were in a general partnership. They didn’t have a barrier like an LLC to protect them.
If you’re asking ‘what is an llc?’, put simply it's a business type that separates your personal finances from your business's finances. If you were to create one, the money would come out of the business, not from your personal bank account. In other words, you and your business are two different non-linked entities. This type of business structure gives you different tax benefits as only your profits from the business are taxed. So your salary might be 10 percent of the business profits but that's the percentage that is taxed.
Investigate your own weakness
Focusing on sales, profits, and brand marketing are probably the only things you want to worry about daily. But you don’t know where future risk could come from and it might be from within your business. Business administrators are like an internal affairs department because they investigate weaknesses inside the company.
An internal control admin objectively looks at your processes, systems, and your future development needs and points out where improvements should be made and what areas are the most risky. It could be something like old software which isn’t allowing your services to grow in capability or it could even be a partnership that is going south.
Keep accurate records
Operations in your business will become standardized once you get used to them. Processes will be streamlined and you’ll soon have a spring in your step as you develop standard practices.
To reduce the risk of abnormal performance, keep accurate records of revenue, sales, growth, and specifics such as time spent on a task or how much money you spent on materials.
Risk is everywhere in business, but don’t let it negatively impact your confidence. By making sure your personal and business finances are not linked, you don’t risk the chance of going bankrupt.