4 tips to assess business risk as an entrepreneur
By ATB Financial 7 January 2021 3 min read
Let’s face it, as an entrepreneur the question isn’t “will there be risk?”, but rather “how much risk are we talking?” To determine how to assess risk, we had the opportunity to connect with one entrepreneur who considers herself to be very tolerant when it comes to risk to find out more about assessing risk as an entrepreneur. With the help of Koleya Karringten from Absolute Combustion Inc., we uncover some of her top pieces of advice for assessing and handling the situations that, as she puts it, make you go “oh my god!”
How do you assess business risk?
1. Don’t risk it all
As confident and determined as you might be, don’t risk everything on your first venture. While it can be tempting to put everything into your business and invest a lot of your own money, Koleya highly recommends that, “(you) don’t ever leverage yourself to the point of bankruptcy to start your own business.” This principle rings true for those who are looking at investing into the expansion of their existing business as well.
Putting yourself in a position where you have a lot to lose in your personal life, in addition to your professional life, can result in unnecessary stress. In turn, this can affect your ability to solve problems and keep your business from moving forward.
2. Take calculated risks
Remember that while you’re taking a risk in your business, it doesn’t have to be completely left up to chance. Before taking a blind leap of faith, consider weighing the risks and rewards for a given decision and calculate the amount you are able to invest into this endeavor.
To do this, consider the worst possible outcome from your actions. If this causes you a lot of stress and anxiety just thinking about it, you might want to consider a way to mitigate some of this risk so you can confidently reach your end goal.
Mitigating risk may come down to sharing the risk. When it comes to sharing the financing burden, Koleya recommended that you prove to your investors that, “you have some skin in the game” but have also shared the risk with a number of other key stakeholders including other shareholders and the bank, if possible.
3. Practice makes perfect
The amount of risk you are willing to take on differs greatly from person to person. There is no one-size-fits-all for entrepreneurs. However, the one thing that stays the same is that practice makes perfect. The more risk you are willing to take on, the more likely you will see successful payoffs and be willing to take on additional risk down the road.
Taking risk builds risk tolerance. Koleya shared, “10 years ago, I wouldn’t have had the same risk tolerance that I have today. But you have to take risks to make your business successful.”
4. Your risk tolerance depends on you
Your risk tolerance is something that changes as you continue through your entrepreneurial journey. Koleya agreed that, “people have to set their risk tolerance for themselves because it’s difficult to determine where someone’s risk tolerance is”.
With that in mind, we asked Koleya how she describes her own risk tolerance. She told us that, “Knowing the opportunity is so great that if I didn’t take the chance I would probably regret it. I take those risks”.
No matter how good your odds may seem, all businesses are subject to failure from time to time. Although it can be hard to deal with these losses, remember that each failure isn’t a failure so much as it is a lesson learned. Take these experiences, determine what went wrong and rejig your plan of attack for next time.
For more guidance on managing the growth of your business, check out ATB’s guide to growing and scaling a business: Infrastructure.