Risks of starting a business

• Starting a business requires preparation and financial backing. business is business - cliche image by Jeffrey Zalesny from Fotolia.com

  The concept of starting a business is very attractive if you look at it in terms of the advantages. These can include being your own boss, choosing your working hours, running a business using ideas you’ve learned throughout your career and having the final say on all decisions. However, setting up a business, whether as a sole trader or a limited company, also has a down side and comes with certain risks.

No Contacts

• Many established businesses rely heavily on industry contacts that they have built up over the years. If you’re new to an industry or starting a new business with no reputation, then having no contacts is a huge risk. Contacts may mean being recommended to new clients by other business owners, getting better deals from suppliers or even being well known to customers in your field.

Long Hours

• Running your own business will initially involve working much longer hours than if you were an employee. This may last for the first few years only or may be a permanent shift to your working life. People who run their own businesses generally work much longer hours than the standard 9-to-5 working week and can find themselves working from home after hours, being on call. This can have a significant impact on family life and personal relationships.

Many Bosses

• Although owning your own company will mean you’re the boss, you will have to answer to customers or clients who will, in effect, be your boss as they are the ones you need to please to continue running your business successfully.

Financial Loss

• Starting a business is extremely risky in terms of finances, and start-up capital will be needed for things like renting premises, buying equipment and purchasing stock. Other hidden or unexpected costs may include marketing, setting up a website and non-payment by customers. On top of this, the business will need to break even to avoid making a loss. This means making the same amount of money from selling products or services as you have spent. And if the business actually makes a profit, then the tax man will get a portion. In addition, some revenue will be needed for the future running of the business and some for personal uses such as national insurance contributions and pension allowances. Anything left can be taken as wages.

Competition

• While the idea for your new business may be revolutionary now, in the time it takes to set up and get trading someone else may have had the same idea and set up already. This could mean they have already claimed the clients in your market. An existing business in your area may cut their prices to compete with you, or a new business may come in with lower prices, meaning they claim the market share and take your customers.