When It Pays To Be Risk-Averse in Business

4 Mins read

There’s an element of risk involved in every business decision. If you read autobiographies penned by leading lights of the entrepreneurial world or you stumble across articles written by moguls, you’ll probably find that many discuss the importance of taking risks. It’s true that to succeed, sometimes you need to gamble, but there are certain times when it pays to be risk-averse. Proceeding with caution is often the best course of action for budding entrepreneurs. Here are some instances when it’s better to tread carefully than to throw caution to the wind.

risks with businesses

Shutterstock Licensed Photo – By iJeab

Your finances

It’s no secret that up to 90 percent of new businesses fail, and one of the main reasons is a lack of financial resources. If your business isn’t funded properly, you’re overspending, or you haven’t got enough money coming in, you’ll find it virtually impossible to stay above water. There are risks involved with setting up and running a company, but always try and ensure that any risks you do take are calculated. The odds should be in your favor if you’re going to take a punt. When it comes to managing your accounts and overseeing your books, focus on steadying the ship and make sure it makes financial sense to expand or reinvest before you make any groundbreaking decisions. If you’re not turning over a profit yet, it’s probably best to wait before you try and grow the business and spend more. To make a business work, you need to bring in profits. From day one, pay close attention to your accounts. Document every payment, file every invoice and check your balances on a regular basis. If you can keep cash flow issues at bay, you’ll stand a much better chance of pulling through and taking your business to the next level.


You may think that you don’t need insurance for your business because the chances of needing to make a claim are slim. However, there is absolutely no means of being certain that your business won’t come to harm. Business insurance is there to protect your company name and reputation, as well as your possessions and assets. Even if you never have to make a claim, it’s worth investing in insurance to make sure that you don’t lose everything you worked for in an instant. Nobody knows when a storm may hit, a thief may strike, or a cyber-attack could threaten to wipe out your business. With insurance, you can protect yourself against burglaries and adverse weather conditions, damage to stock or business premises and mistakes that could put your reputation at risk and cost you a significant amount of money. If you’ve got employees working for you and they make errors, your customers have a right to claim compensation. Without insurance, you would be liable for these costs. Business insurance can also cover the cost of workers’ compensation. As a company owner, you are responsible for ensuring that your workforce is safe. If somebody had an injury on your watch and you displayed negligence, you would be liable for legal fees and compensation. If you’ve got insurance, you have a safety net to fall back on, which could just keep you in business.

Legal matters

If the thought of trying to exploit a loophole or exert poetic license when interpreting the letter of the law have crossed your mind, it’s wise to think again. There are rules in place in every country, which govern how businesses should operate. If you want to take risks and do things differently to try and save money, you run the risk of paying for it later. There’s very little point in trying to gamble when it comes to the law. Read the regulations, take a look at policies and procedures and make sure your business is compliant. If you veer off-piste and you’re found guilty of flouting the law, this will end up costing you both financially and in terms of your reputation. You don’t want customers to pick up the paper and read negative headlines about your business. If they do this, they may well think twice about choosing you again. It’s always a good idea to have a legal expert in your corner to make sure that everything you do is above board.

Plans for growth

Most entrepreneurs have plans and hopes to expand their business. If you’ve got a store or a salon, you may want to own a chain. If you started life in an office with a team of five people, you may have dreams to open offices all over the country and employ hundreds, even thousands of people. Whatever your aspirations, it’s advisable to be aware of the importance of timing. If you make the right call, your business could go stratospheric. If you don’t, you risk losing everything. If you do have grand plans for your company, there’s nothing wrong with dreaming big, but do your homework and bide your time. To expand successfully, it’s wise to wait until your venture is turning over a profit and to ensure that there’s a market that demands what you’re selling or offering. If sales have slowed in recent weeks and you’re struggling, it’s probably not wise to invest more money in opening new branches or buying more stock. Growing any business involves taking calculated risks but try and resist the temptation of gambling at the wrong time or ignoring indicators that demand is dwindling.

You often come across quotes and sayings that suggest that you can’t get anywhere in business without taking risks. To a certain extent, this is true. Setting up any kind of venture involves putting your neck on the line, but there’s a time and place for taking a punt. There are certain aspects and areas of business that don’t lend themselves to risk-taking, and sometimes, it pays to be cautious. Don’t play with fire when it comes to your finances, never underestimate the importance of insurance, do things by the book and plan meticulously if you hope to expand the company.

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About author
Ryan Kh is a big data and analytic expert, marketing digital products on Amazon's Envato. He is not just passionate about latest buzz and tech stuff but in fact he's totally into it. Follow Ryan’s daily posts on Catalyst For Business.
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