Mitigating Financial Risk Starts with a Solid Plan
Entrepreneurship and starting a business inherently come with risks and uncertainties. Some are exciting, such as “will my product or service solve an everyday problem” or “will I make an impact?” Others aren’t so exciting. In some cases, entrepreneurs may run into financial risks, which could lead to a business’ downfall.
So, what is one way for an entrepreneur to decrease risk?
The major way business owners can mitigate risk is to start the project with a solid business strategy and financial plan.
Let’s focus on the business plan first. To secure sufficient funding from investors and qualify for business loans, it’s important the business plan is robust, covering all necessary components: market research, funding requests, marketing and sales plans, financial projections and more. It should be based on current data, sales and market interest, and feedback from customers. When all of this information is compiled, determine if your plan is financially viable and has the potential to be a success.
Now, let’s cover the financial plan and secure proper funding. Ensure you have the funds to weather any storm, whether it be a small social media faux pas impacting the brand or a nationwide economic crisis impacting sales. Your blooming small business needs to be prepared.
1. Save, Save, Save
Build up extra personal and business funds in case of emergency. With that, it’s important to be mindful of spending habits. Keep records of all business and personal purchases. Review those documents every month or quarter to determine where you can cut back and save money.
All those savings bring us to another essential component of mitigating business risk: liquidity. Don’t put all your funds into real estate, physical assets or long-term investment accounts. Liquid assets are key to securing loans and overcoming financial challenges.
2. Buy Insurance
Purchasing insurance for your business can bring you peace of mind. It can protect you from losing hard-earned money if there is a death or disaster.
3. Diversify Income
When first starting a business, you may want to have more than one source of income to support saving goals and act as a backup plan.
4. Keep Accounts Receivable Low
Ensure you are collecting from customers. Keep records and follow up with clients who have outstanding invoices. Add timeline clauses to your contracts to hold customers accountable for payments.
5. Understand Loans & Enlist the Right Lenders
Most small businesses need loans to fully fund the project. Owners can reduce financial risk by being mindful of the various types of loans, terms, sizes, amortizations, loan-to-value ratios and debt service coverage ratios. Not only is choosing the right loan integral to reducing risk but also enlisting the right lender plays a critical role in the matter. Choosing the best lender for your needs can provide support and assistance throughout the growth of your business.
Extensia Financial and our sister company LendThrive offer business owners and entrepreneurs a variety of commercial loans.
About Extensia Financial
Established in 1998 and headquartered in Simi Valley, CA, Extensia Financial offers competitive commercial real estate loans. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire loan process. Extensia Financial is a proud member of the AVANA Family of Companies.