Risk and Business Essay

Submitted By dang_ducbinh
Words: 1370
Pages: 6
Open Document
Inc. 5000 List | magazine | events | newsletters | advertise | subscribe
Login or signup

Startup Grow Lead Innovate People Money Video

BUSINESS PLANS
Managing Risk in a New Venture BY Jay Ebben, Ph.D.

You can't get rid of all the risk of starting up a business, but you can certainly take a few steps to mitigate it.
12 SHARES | Share this article

Most definitions of entrepreneurs that I have seen include something along the lines of "someone who takes risks." While there is certainly some level of risk in every new firm, the process of starting a business should not be about taking risks; rather, it should be about managing the risk that is involved. There are two main sources of risk in a new venture: the risk due to uncertainty surrounding the business and the risk due to what is at stake if the business should fail. You can't get rid of all risk from either source, but there are steps you can take to mitigate it.

Risk Due to Uncertainty Surrounding the Business. No business is a sure thing, but much of the uncertainty can be resolved through analysis of three of its sources: the market, the operational model, and the financial model. Market risk is a result of many factors, including whether the market is large enough to support your business, whether the market is growing, what trends exist in the industry, how the competition is structured, and how distribution works. If industry trends are moving away from your product or service or if potential customers are already locked up by competitors, it will be difficult to gain customer momentum. The issue of market size is also important in feasibility analysis. For instance, if you are starting a microbrewery, it is important to understand that your market likely is not the nationwide microbrew market, nor the local beer market. It is more than likely the local microbrew market, which is much smaller. Additionally, you should understand what regulatory trends are occurring: If you want to open a cigar shop and lounge, for instance, you would be wise to consider the potential impact of anti-smoking laws. Again, though you cannot get rid of all of the risk in entering a particular market, you can reduce your margin for error by understanding the nature of the market and customer buying behaviors. As a mentor of mine likes to say, "Become a student of your industry."

Operational risk deals with whether the business can set up internally to deliver goods and services to customers effectively. For product-related companies, this will include manufacturing and assembly of goods, which is often difficult to set up in terms of cost and quality control. This is even true if outsourcing to experienced firms. For instance, your manufacturer in Asia may ship you goods that have the logos sewed on upside-down -- a simple mistake but significant problem (This happened to a start-up I know in the Twin Cities). Operational risk will also include logistical issues with delivery and returns and effective use of service staff. Remember that your ability to execute internally and keep costs under control will be essential to business success.

Financial model risk refers to the risk that the business won't work due to the numbers. For any business, you should generate financial projections to get a picture of where breakeven will occur and what will drive the business financially. In other words, make sure to understand what revenues and costs must be in order to make the business financially viable and what factors impact revenues and costs the most. This will tell you your critical factors for success and provide you with tools for managing the business. For instance, if your main cost drivers are labor and materials, then you should concentrate on methods that ensure efficient use of labor and lower input costs. Remember that the financial model paints the picture of all aspects of the business and that the business cannot be
Show More

Related Documents: Risk and Business Essay

Essay Business Risk

Some of the greatest entrepreneurs and most well known business people of our time started with just a simple idea in mind, and with these ideas came many challenges. Bill Gates, Mark Zukerberg, Marc Cuban are all millionaires who all had an idea, and decided to take a leap of faith and create a business that is well known today. In this paper I will present WITRON Integrated Logistic who did just that, by taking one idea and assuming all the risks to get to be a globally known company. Walter Winkler…

Words 684 - Pages 3

Risk Management and Business Essay

RISK TYPES THAT CONTINUE Verohnika C. Bau BUS650: Managerial Finance (NAJ1445A) Instructor Keith Wade, DBA, MBA December 1, 2014 RISK TYPES THAT CONTINUE The substantial risks of a functional business entails four major factors that become the lifeline such as property, market, employee, and customer mitigating risk factors. In developing subliminal guidelines propagates ideal situations that allow for a business to grow no matter what the trend. From changing customer attitudes to ultimate…

Words 1403 - Pages 6

Essay on Risk and Cushion Business

all his savings to set up his cushion business in China. Willingness to take a risk, invested £2m into building a factory, the business would either be very successful or fail miserably based on the production of the factory. So it was a calculated risk that was involved Confident, he believed that his idea would succeed, took massive orders in a cushion convention and promised that he would deliver – shows he has confidence and self assurance in the business and product Creative – offered a wide…

Words 463 - Pages 2

How To Minimise Risk In A Business

Risk Assessment Risk can be described as an uncertain event or condition that, if occurs, has a positive or negative effect on a business (Marchewka; 2006). In business it is imperative to continuously monitoring risk as the environment is constantly changing. According to Cadle and Yeates (2008) the identification of risk will help a business to plan, prioritize and formulate responses to those risks that provide the greatest threat or opportunity for the business. Businesses must acknowledge that…

Words 868 - Pages 4

Auditing and Business Risks Essay

CHAPTER 4 RISK ASSESSMENT Answers to Review Questions 4-1 Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Engagement risk is the risk that the auditor is exposed to financial loss or damage to his or her professional reputation from litigation, adverse publicity, or other events arising in connection with financial statements audited and reported on. In simple terms, audit risk is the risk that an auditor…

Words 3324 - Pages 14

Risk Management in Business Essay

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events[1] or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets, project failures (at any phase in design, development, production, or…

Words 495 - Pages 2

Business Regs and Essential Risks Essay

Business Regulation and Essential Risk Management Lamont Clark, Cristina Mancha, Bobby Jo Sonon, Gwendolyn Wilson, Arnie Zhang, Business Law/531 22 April 2012 John Fossum Business Regulation and Essential Risk Management Common law placed the risk of loss to goods on the party who held title to the goods. Article 2 of the Uniform Commercial Code (UCC) rejects this notion and adopts concise rules for risk of loss that are not tied to title. It also gives the parties to a…

Words 2015 - Pages 9

Risk and Carey Business School Essay

Managing Financial Risk 2 Credits BU.230.730.83 Tuesday 1:30 p.m. – 4:30 p.m. From 3/24/2015 to 5/12/2015 Semester: Spring-2 Class Location: 203/204 (Harbor East) Instructor Nicola Fusari Contact Information Phone Number: (410) 234-9411 E-mail Address: nicola.fusari@jhu.edu Office Hours Baltimore: Wednesday 9:00 a.m. -12:00 p.m. (appointment only) Required Text and Learning Materials: Christoffersen P. F. (2012), Elements of Financial Risk Management, 2nd Edition, Elsevier. This is a technical…

Words 1588 - Pages 7

Launching a High Risk Business Essay

Launching a high risk/ high return business is not a simple process. There are several key factors and criteria that need to be met in order for your venture to have a chance. Ignoring them would most likely result in complete failure, and this is why a large number of startups fail in their early stages. This simulation is meant to help me identify the key pitfalls and factors of success. The purpose of this report is to communicate how I approached the problem of launching the high risk…

Words 2409 - Pages 10

Essay on Generally Accepted Accounting Principles and Potential Business Risk

1. Top four significant business risk factors Virgin Australia Holdings (VAH) is the second largest airline in Australia and operates through domestic and international operations (Farabi, 2012, p. 3). However, there are some business risk factors should be considered before engagement letter preparation. A. Intense competition Australian air-service industry is experiencing a tough period. Since early 2000s, with the some restrictions removed, some international companies appear in the domestic…

Words 2535 - Pages 11