Risk in any endeavor is inevitable and before you decide to become an entrepreneur, you fully need to understand the risks associated with entrepreneurship and ensure that you are ready to handle them; otherwise, it would be a waste of time to start something only to realize later-on that you are not cutout for it.
The risks associated with entrepreneurship are discussed in this article to help you gain better knowledge and understanding of what are at stake. This should facilitate readiness on your part, and aid you in deciding whether you would really want to become an entrepreneur or not.
Business Risks in Entrepreneurship
Among the many aspects of entrepreneurship that are considered risky is the business itself. The following are some of risk related to business:
- Heavy losses: Entrepreneurs could suffer from heavy losses
especially today when the economic downpour is still evident. When there is a
lack of market demand or when competition is very high, your business could
suffer setbacks and at times, these losses could be too big that the
entrepreneur may not be able to keep going with the business.
- Debt payments: Usually, when one starts a business, he may not have
sufficient funds to cover all the necessary costs. To counter this, the
entrepreneur seeks a loan from a bank or financial institution. There is
nothing wrong with it really but the problem lies in the fact that there are
always financial setbacks along the way which may hinder us to pay our debts
on time and as a result, we have to deal with penalties and late charges which
could compound our debts to amounts that we find very difficult to pay.
- Employee issues: Employee dissatisfaction could end up in strikes
and demands for higher pay. This is certainly going to affect productivity and
profit loss on the part of the entrepreneur.
- Stiff competition: Competition could make or break a business. If
you cannot keep up and stay ahead of your competitors, you run the risk of
getting left behind. You must have strategies to effectively manage
- Market instability: Due to the fact that the market is never stable, this means your profits will also be unstable. You have to be ready for the highs and lows and must have the means to keep your business going, regardless.
Sole Proprietorship Risks
When a business is owned by only one person, this type of ownership is referred to as sole proprietorship. Below are some of the risks involved in sole proprietorship.
When there is only one owner, this person becomes solely liable for whatever happens to the company, the business, and its people. When accidents, lawsuits, and debt issues occur, the proprietor is solely responsible.
2. Lack of protection
By protection, this refers to personal assets. Even if lawsuits are filed against your business, your personal assets could still be taken away from you.
Setting up your business, you would have to secure the capital on your own. This means that if you apply for a loan, only your own credit standing will be assessed. If you have poor credit standing, this could affect the approval (or disapproval) of your application.
Being the sole proprietor, you have to deal with difficulties revolving around your human resources. Health insurance may be something you cannot easily avail for your employees and as a result, not many qualified workers will be attracted to your company. Additionally, you would have to pay premium for your own health insurance.
Since you are the only person managing the business as a whole, you need to be devoted to it. This means you would have to put many hours working and you would have to deal with every problem that occurs. This can be stressful if not managed properly, and you must be ready for these.
Joint Venture and Corporation Risks
A joint venture is a type of business that is owned by at least two parties, whereas a corporation is a business ownership that is owned by at least five parties. Below are some of the risks involved with these types of entrepreneurships:
1. Conflicts and disagreements
When several people own a business such as in the case of joint ventures and corporations, conflicts and disagreements are bound to happen. This is because they may differ in management styles, culture, and even objectives. When proper intervention is not made, disagreements could result to conflicts which will affect the business.
2. Slow processes and decision-making
Because there are many individuals who own the business, this means that move needs to be assessed and evaluated by each of them. Decisions must be made by all, or at least, majority of the owners, and as a result, it will take time before processes, procedures, and decisions can be made. Slow decision-making process is risky for entrepreneurs because there are cases wherein sense of urgency must be evident to keep up with the demands.
3. Communication or a lack thereof
When the objectives are unclear and everyone is not on the same page in terms of how to run the business and management styles, this will result in a communication gap. Other times, there is no communication at all between the owners. Lack of communication is another risk because it could result to lack of cooperation among these people and their staff, along with poor integration and understanding of what needs to be done to reach the business objectives.