How to decide to take commercial risks as an entrepreneur

We all take risks in our everyday lives – but risk-taking is also a key part of running a successful small business.

In many ways, leaving your full-time job and launching a business could be the biggest risk you will take as an entrepreneur, as you leave behind the stability of a regular income and become your own boss opens in new window.

You could face daily decisions involving an element of risk while running your own company, whether implementing new operational systems or launching a product into a niche market.

But how do you decide which risks are worth taking, and what should you consider before going ahead?

Learning how to make informed decisions will mean you have the confidence to take risks for your business with less fear of failure.

Read on to discover smart ways to consider when taking commercial risks when you’re running a start-up.

 

What are business risks?

There are a number of risks you could face as you grow your start-up into a successful enterprise.

While the term “risk” could have negative connotations, taking calculated risks as an entrepreneur can lead to successful business results.

• financial risks could be considered the most consistent and obvious to your business, involving your ability to manage finances opens in new window, credit, and cash flow opens in new window
• market risks are also known as systemic risks and involve external factors such as inflation opens in new window and economic health affecting your market
• reputational risks could potentially bring unwanted public attention and harm your brand and business reputation opens in new window if not handled carefully
• competitive risks can stem from new businesses entering your market opens in new window, or competitors launching more innovative solutions or creating partnerships opens in new window with each other.

 

Why is risk-taking important for entrepreneurs?

Taking well-planned and strategic risks while growing your start-up can be a good thing, not only for your personal growth but also for the health of your business.

 

Increased business growth

You could see your business grow and profits rise by taking calculated risks in different areas of your business, such as new product development opens in new window or marketing opens in new window.

 

Personal growth

Many people may find it easier to learn from practical experience while building their company.

As an entrepreneur, taking risks could push you outside your comfort zone, but in turn, this could help make you more resilient opens in new window, open-minded, and adaptable.

While taking risks can feel challenging – and you may not always get the result you are hoping for – the learning experience can be highly beneficial.

 

Gaining a competitive advantage

Entrepreneurs willing to take calculated risks and develop their start-up might grow their business opens in new window and be in a better position to seize new opportunities opens in new window as they arise.

Being open to trying new ideas and being informed about when it’s appropriate could put your business ahead of the competition.

 

More investment

Investors who see businesses actively taking calculated risks could be more likely to invest in your company opens in new window.

This could be because making strategic decisions is important for innovation and higher growth potential, which could turn into profit.

 

Different types of risks for entrepreneurs

As the owner of a start-up, you may have to take several business risks to grow your company into a successful enterprise.

 

Starting your own business

The decision to start your own business could be considered an entrepreneurial risk, requiring you to invest time, money, and energy into getting your company off the ground opens in new window.

 

Taking out a loan

The risk associated with taking out a business loan opens in new window hinges on you generating enough income from your business to pay it off while also making a profit.

If a business loan isn’t for you, there are several alternative funding methods you could try for your start-up – read our guide to best business funding alternatives opens in new window.

 

Hiring employees

Hiring your first staff member can be an exciting step for a start-up owner, but it is also a financial business risk.

You need to be able to regularly pay their salary opens in new window in line with their contract as well as your salary and any overheads.

You also need to hire the right person who will add value, skills, and experience to your growing business.

A poor hire can be disruptive for small businesses.

Read our guide to how to hire staff for your business opens in new window.

 

Launching a new product or service

After months of research and planning, launching a new product could feel like a hugely rewarding moment.

However, with every new product or service you offer, you could be a taking strategic or financial risk if customers don’t respond to it as well as you expect – or if adequate research and planning opens in new window hasn’t been done.

 

Overtrading

Overtrading occurs when a business expands too quickly and doesn’t have sufficient cash flow or capital to sustain its growth.

While receiving more orders or taking on more clients could be considered a marker of positive business growth, overpromising could also be a financial risk that can land your business in the red.

Learn more about overtrading with our guide opens in new window.

 

How to improve risk-taking as an entrepreneur

Taking calculated risks could be considered a key part of being a start-up business owner, but it can be difficult to decide which risks to take and how to take them.

Improving your strategic decision-making skills opens in new window can help with risk-taking when looking to grow your small business.

 

Identify the type of risk you are taking

Before taking a risk, it would be wise to identify what kind of risk it is and how severe the outcome would be if you don’t succeed.

You could be taking a small operational risk, such as switching bookkeeping software opens in new window, or a larger compliance risk, such as leaving sensitive customer data unprotected opens in new window.

If you consider a risk too high, it could be worth considering an alternative, safer option for your start-up.

 

Do your research

It always pays to be prepared, and conducting thorough research can be a smart way to help you decide if a risk is worth taking.

You could consider both positive and negative outcomes and look into relevant decisions made by similar businesses.

Having solid research to inform your next steps will help you move forward with confidence, whether or not your risk pays off.

 

Write a list of pros and cons

When you’re making any major life decision – getting married, buying a home, or changing career – a list of pros and cons can be a simple but effective way to help you follow the best path.

The same principle applies when it comes to taking a business risk.

A round-up of advantages and disadvantages can highlight any points that might influence your decision, and encourage you to think through your options.

Once you clearly list the pros and cons, it could be much easier to decide if the potential outcomes are worth the risk.

 

Seek expert advice

Gathering as much insight as possible from experienced business owners or mentors could help you feel supported and improve your risk-taking.

Asking questions can be an invaluable way to arm yourself with relevant, trustworthy advice, particularly when it comes to financial and compliance risks.

 

 

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.