How to Manage Risks as an Entrepreneur


If it were easy, then everyone would do it. You don’t become an entrepreneur because you’re afraid of a challenge, but you also need to know when to look before you leap or when to decline to leap at all. Understanding how to manage risks is an important skill, and having some cash on hand, listening to your instincts, and contingency planning are all important elements of that management.

Manage Your Cash Flow

Many problems, big and small, would disappear if you had money to throw at them. As a small business owner, you may work with tiny margins and not a lot of flexibility in terms of your cash flow. This can be a problem if a client falls behind on making payments to you or you suddenly need to make a major purchase. For this reason, in addition to staying on top of your daily financial picture, you should have some cash reserves. This could just be money that you have saved up yourself.

You may want to start budgeting and look for ways to reduce your expenses each month. This can go beyond tightening your belt in the grocery store or resolving to drive less and walk more. You might be able to refinance your student loans, making lower monthly payments and putting the difference away in your cash reserves fund. Applying for an Earnest student loan refinance can be done quickly, and you may also end up paying less over the entire life of the loan if interest rates are lower. Other ways to save money might be renting out a room in your place, moving to cheaper housing, or trading in your car for a less expensive one.

Pay Attention to Instinct

No single factor should be the only thing you pay attention to when it comes to running a company and assessing or dealing with risk, and your instincts about a situation are not necessarily infallible. However, following your instincts is not some kind of mystical path either. When you instinctively sense something is wrong about a situation, it’s often because information is coming to you on a level that you haven’t yet processed consciously.

If you get this feeling, buy some time for yourself before deciding. Get somewhere quiet and think through your discomfort carefully, trying to identify the source of it. Often, this one way to get to the bottom of it, but even if you don’t, it’s okay to walk away from something if it just doesn’t feel right.

Think Worst Case Scenarios

We live in a culture that values positivity, but in order to mitigate risk, you need to do some of the opposite, thinking through some common worst-case scenarios and figuring out what you would do if they came to pass. This can help you spring into action quickly if you are suddenly facing something like your business burning down, losing a key client or getting entangled in a lawsuit. Commit these contingency plans to memory or keep them somewhere safe but within easy reach.