SCORE Small Business Blog

How Risky is Starting a Business?
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There’s a widely held belief that most people who start businesses are born risk-takers—cowboys who would rather do things their own way, no matter what the cost, than hold down a job or listen to a boss. But while that may hold true for some entrepreneurs, the reality is you don’t have to be a roller-coaster risk-taker to succeed as a business owner. In fact, just the opposite: Smart entrepreneurs seek to minimize their risk from the get-go.

So how can you start a business, especially in today’s tenuous economy, without putting it all on the line?

Start by focusing on financial risk. The number-one reason small businesses fail is lack of adequate capital. Today, when so many sources of financing—from home equity loans to bank loans to venture capital—have either dried up entirely or become harder to get, this risk is more real than ever. It’s crucial to make sure you’re sufficiently capitalized.

Instead of relying on outside sources (which you may or may not be able to access), minimize risk by figuring out how much money you can put into your startup. Begin by assessing your personal finances, including checking, savings and retirement accounts. Do you have any assets you could sell to raise cash for your startup? How much money can you realistically put in to your new business?

The flip side of raising money is cutting costs. Create a startup budget (SCORE mentors can help) and scrutinize it closely. Where can you cut back? What can you do without or do less expensively? Can you barter or get friends and family to help you out for free? I’m not suggesting you “cheap out” and make your business less robust than it should be, but it’s easier than ever to start a shoestring business today and still have it look like a big-time operation—so don’t spend money you don’t need to.

If there’s still a gap between the money you have and the money you need, you have several options:

  • Start part time by working on your business at night and on weekends. That way you’ll still have your regular salary to draw on until your business is making a profit.
  • Enlist friends and family for financing. Friends and family are the number-one source of financing for startup businesses. If they are willing to kick in capital, make sure you consult an attorney and treat the loan or equity as you would any investment from an outside source.
  • Consider how much you can sacrifice. If you’re young, can you move in with your parents and go without a salary while your business is getting off the ground? If you’re older, can you take money from a 401(k) or other investment? (Be sure you can afford to lose the money you use.)
  • Find a partner. A partnership with another business or person who has the money you lack can be a great way to not only finance your startup, but also bring additional skills, contacts and know-how on board.

These are just a few options for starting up without risking your shirt. SCORE mentors can help you think through your financing needs and figure out how to get the money you need. Visit the SCORE website to get matched with a mentor and get free help 24/7.

Rieva LesonskyCEO, GrowBiz Media
Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship. She was formerly Editorial Director of Entrepreneur Magazine and has written several books about small business and entrepreneurship.
www.growbizmedia.com | @rieva | More from Rieva

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Discussion (3) Comment

  1. How can we Create a startup budget?

  2. Think that it all boils down to financing big time. Good to see that emphasis Rieva.


  3. eddieVisitor

    Excellent advise. It is not as risky when we educate ourselves in how to start a business. It can be more risky to rely on our boss to provide a pay check.

 

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