Managing the Financial Risks, Investing in Your Business

As you have likely realized by now the risks of starting, owning and operating a business are significant and numerous. As such a significant part of the strategic planning for any business owner involves managing these risks properly, in order to ensure that the best balance between cost of mitigation, and exposure is struck. And whether you are a small or large business, it is essential that you have, and maintain, a solid strategy for managing those risks.

In terms of establishing a proper plan for investing in your business, I would suggest that you at least consider some of the aspects for managing those risks, including:

1. Investing with a plan.

Though investing in your business will not often be the largest of the exposures you will encounter in your business life, if not managed carefully it could potentially prove disastrous to your financial wellbeing. One of the key things to consider is that throwing money at your business for the sake of investing, is a pointless exercise. So it is very important that when you do invest, you actually invest with a specific purpose in mind. And in terms of this I am not suggesting some generalized idea of a purpose, but an actual purpose with an objective, budget and complete spending plan. Applying this approach will ensure that the money is put to good use, and not just wasted on trivialities.

2. Calculate the cost of your investment.

A second consideration specific to investment in your business is an accounting of the loss of earning potential possible from alternate sources. Asking yourself whether the investment would yield a better return elsewhere, would most certainly help you make a more balanced decision on how, and how much you invest. Recognizing of course that often the returns from investment in your own business are more long term, I would suggest that you do the actual math. If your plan is a 5 year plan, calculate the interest lost, versus the amount you expect to get in return, from your business investment. Consider the risks of both, and then weigh your options carefully. And do remember the value of your business growth is also technically a return.

3. Invest in assets.

Although not always possible, one of the best ways to mitigate investment risk is to invest in assets. In other words buy things that you can sell in order to recuperate your loss, if the business (or specific investment) fails. Resalable inventory would prove a better investment than furniture for your office. Thus buying an expensive leather chair with the money you invested is probably not the best idea. And of course investing in assets that could generate direct profit would improve your odds of getting a decent return.

4. Hire an expert

More often than not I have noted that business people invest in intangibles like marketing and branding, thinking they will get huge returns from this. The unfortunate thing is that more often than not, the returns are not what they expect them to be, and the money ends up being wasted and lost. In order to mitigate your risk of loss, I would strongly urge you to retain the services of an expert in what you are buying. For example, it will prove well worth your while to hire a marketing guru, rather than going at it on your own. It will most definitely increase your success and rate of return.

Of course there are many other potential exposures, all of which could have a significantly impact on your return on investment and business success overall. Realizing however that planning, based on proper research, is key to not making large mistakes in this arena, it is important to spend the time to ensure the best possible outcome.

I wish you all the best with your ventures, and invite you to share your ideas and stories here.

Cheers!