Cutting Risk for Your Startup

Guest Post by Alek S.

New businessStarting a business can be a big risk. There’s really no way of knowing if things are going to pan out the way that you want them to or not. Indeed, in 2014 there were nearly 34,000 more business closures than new firms being created, according to the U.S. Department of Commerce. It’s important to know when you go into every business venture that there is a great chance that you could fail, and that it happens to startups all the time.

However, that doesn’t mean you should shy away from a challenge. With great risk comes great reward. However, it can definitely make it a great deal easier if there is less risk to worry about. Here are some ways that you can cut risk for your startup…

Use venture capitalists

First of all, if you want to start a business that actually has a chance of succeeding, then you are going to need the funds to set up a quality company. With the way our economic system works, most entrepreneurs don’t use their own money to do this, and instead rely on either angel investments or venture capitalists to fund their venture (often through a special purpose vehicle). A few things to remember about using venture capitalists, though, is to make sure that you set up your business as a limited liability company, so that you aren’t responsible with paying back these investments if the business fails, provided that you acted in good faith and upheld your responsibilities to the company.

small business owner

Use the tax code to your benefit

The federal government, and many state governments, have incentives for people who want to start new businesses so that they can attract entrepreneurs. Usually, these incentives are set up in the tax code to offer tax breaks and deductibles to help new companies survive their first several years with less financial burden, so that they can grow and expand (which turns into more revenue for states, later). Make sure that you are taking advantage of all of the tax deductions that are offered to startup businesses, to help lighten your load.

Reduce startup costs

Almost every company starts out in the red, which means that their revenue doesn’t exceed the costs that it takes to run the business. This is because it takes time to grow revenue, and there is usually a large initial startup cost to get a business up and running, which takes time to get back. However, you can reduce risks for your startup and improve your chances of surviving by reducing and cutting your startup costs in ways that make sense. The more economical you are with your business in the beginning, the less time it is going to take for your revenue to start generating a profit. However, make sure that you don’t cut away anything that is needed for your company to operate at a high quality.

Have an immediate plan for revenue

The scariest thing about starting a new business is the idea that you aren’t going to get any customers, and the whole thing is going to be dead before it really gets going. You can prevent this by making sure that you have an immediate plan for revenue when your business starts going. If you have at least a minimum amount of revenue that you know you can generate each month, then it is able to ease a lot of fears about how long your startup can sustain, and you can instead focus on growth, rather than scraping by.

"risk" cut in half

Get the word out before too much skin is in the game

Kickstarter is a tool that many startups use to get pre sales for their products. Well, one cardinal rule for running a Kickstarter campaign is that the campaign doesn’t start when you actually launch it, or at least it shouldn’t have. Ideally, the campaign should have started over a year earlier, where social media was generating interest in the product long before any funding ventures ever started. This is something that is important for all startups to follow. Take your time and get the word out earlier, rather than later, so that you can have a devoted consumer base (even if it’s a small one) to start with.

-By Alek S.

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