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Best Ways To Minimize Your Risk For Loss When Starting a Business?



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Best Ways To Minimize Your Risk For Loss When Starting a Business?

Everyone who intends to start a business hopes that they it will be profitable. Even with the most elaborate contingency plan still there is always that likelihood, however remote, that you'll make a loss. 

Pessimistic as that may sound, I'd like to know whether there are any surefire ways to minimize losses when you start a business. 

Got some tips you can share?

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DenisP

The most obvious tip I have is to not put all your eggs in one basket. I know several people—some even from my own family—who invested everything they had in a business, only to have it fail on them. I’m talking taking out loans, investing life savings, the whole the nine yards. The businesses failed and they were left without a penny to their name and a mountain of debt.

Whether we’re talking about minor losses or total bankruptcy, it’s important to never go all-in with your finances. Going all-in into a business is like jumping out of a plane with no reserve parachute.



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Jeane

That is really risky, investing all your money in one business. There is no telling if a business idea is viable until you test it out. And I suppose the best way to test it out is by using only a small percentage of your capital and pump in more money as demand for the products or services you sell increases.

Thanks for your feedback!



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theresajane

Yes, I agree with you. It's so scary to think that you'd go bankrupt because you have put every cent of your money into the business. It would be hard to live with debts afterwards.



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Bravosi

Ideally you just prepare a certain amount of budget that you're willing to risk and use, only afterwards you can afford to spend it entirely. Gotta calculate everything prior to it, though.



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DenisP

My aunt actually had put herself in this situation. She opened a second-hand clothing shop that was doing moderately okay, but “moderately okay” wasn’t good enough to keep both her business afloat and finance her daily expenses in regular life. She ended up having to close the shop because she barely afforded the monthly rent for the property, and ended up with a bunch of debt as a result of not even being able to pay the bills in her own home.

Sometimes you just have to jump ship before things get that bad, but try telling that to an optimist.



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Youngshark

Actually famed investor Warren buffet has a quote that goes "Do not put all your eggs in one basket as per matters investment". Wise investors have backups.



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nrnlss

I agree with you, in business no matter how click your first few months are it still have a chance that it will go down and close. So whatever happen you should save something encase of something happen.



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menchuuy58

I agree with you. Don't put all the eggs in one basket. You have to spread out your money. If the business fails, you can have other options to sustain your life.



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knnon

This is true, one shouldn't gamble everything they have on a business no matter how successful it seems on blueprint. Nothing is really concrete when it comes to businesses as there are factors that can affect it positively or negatively.



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Bravosi

You are right, however, sometimes you just have the gut feeling and you simply go with it. Obviously gambling everything isn't the way to go, but investing a good portion of something you have into something that you know will be successful is the only way to become rich.



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ElectorAlexande

Yea thats true, business is all about risk and when people learn how to take risk irrespective of the outcome will profit higher.



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Youngshark

Even with taking risks it is always important to have some controls in place. This is why Einstein said that the difference between stupidity and genius is that genius has its limits.



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rose61

Carrying all your eggs in one basket shows lack of foresight.Even with insurance, you cannot risk investing all your money in one business. You'll have yourself to blame should things go wrong.



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menchuuy58

Don't put in all your money in that business alone. You must have saved money in case that business will not work.



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Corzhens

That is a good advice about the eggs but if you have a business I don't think you will put up another business just to scatter your investment. That adage about scattering your eggs is only for the investment but not exactly for putting up your own business. Having one business is the best because you can have the focus and total concentration. My take on a business is a good business plan so you will have a guide that is time-tested by other businesses that became successful.



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beerthooyah

I have watched some interviews of some successful entrepreneurs and when they are asked on what advice that they can give to all aspiring entrepreneurs. One advice has really embedded in my mind and that is to prepare to lose. It is said that for every 10 business that you will make. Seven of which will probably fail. So you gonna have to plan yourself to be ready to fail seven times. How is it going to be done? Well, you have to position yourself that even if you fail several times you still have the resources and energy to get back up on track. Divide your funds into 10 and what you get in dividing your funds you will use it in starting a business so even if you fail you still have 9 remaining funds to be able for you to recover. What is important in this logic is that the learning and process that you submit yourself will benefit you and eventually making you a better businessman. Do not be afraid to lose just keep on trying because if by chance that your next business will succeed. It will surely cover up the losses that you have incurred in your past wrong moves.



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Kakashi2020

I once had a boss who has the same mind set. What he would do is to open up 7 businesses all at the same time, managed by his trusted officials and then he told me that this was what he learned for the 40 years as a businessman. Dont put your eggs in one basket, put them in 7 different baskets, he told me. Open 7 businesses and chances are one or two of them will become successful thereby recouping any losses from the 5 failed businesses. He's dead now but he left a legacy of corporations and industries worth billions.



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emiaj55

I wonder if this could work in a lesser number of baskets, say three? I am just wondering if someone has lesser capital and definitely lesser number of people he could work with, I wonder if this principle could be applied.



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Youngshark

Wow definitely very wise of him and this is testified in the fact that his legacy and businesses live on even after he has died. Multiple businesses can also support or complement each other.



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Jeane

I like that strategy. Split up your funds into 10 and invest each in different businesses. Since this money isn't to be invested concurrently That way at least when you start another business you'd have learned what should or shouldn't be done.

I had some reservations initially but come to think of it again I'm sure that if you fail several times, you'd obviously learn how to plan better so you don't fail.



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Bravosi

Holy cow! For real? I didn't think it was that unexpected. 7 out of 10 is a huge loss. But I suppose those 3 left make up for it, huh?
To own 10 businesses is a hard job, imagine the budget you have to maintain and own at the beginning in order to launch them. It's obviously not an opportunity for a regular person after university. You gotta work 15-20 years to save up enough to open one business. Can't imagine how long in order to have the necessary budget for the whole pack of them.



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beerthooyah

That's what he said in the interview. But the profits he earned from his three business ventures was enough for him to cover all the losses in the past. Then he said this one thing. If you are afraid to lose, you already lose. Well I guess entrepreneurship are for gutsy people.



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kaushikangara

Great comment. You should have the right mental setup initially and should be able to take wins/losses equally. Only then, you can become successful. If you overcome losses, you will eventually become a winner and you will know better what to do next time when you encounter such a situation. It is for the good.



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gutzman

I'm not sure if there are surefire ways to minimize losses but there are ways to minimize it. I can't say it's surefire because it doesn't work for everyone. If there would be one thing that will for sure minimize your loss, everyone must be doing it already and you already know it. Having a plan as you said, even how rigorous it is, will still have a chance to come up with a loss but I think it is your best bet if your would ask my opinion. Being prepared is better than relying on luck.



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ajahcuizon

I agree. It is necessity to have a plan for your business. Plan that will keep you on track even though everything is going wrong. On that way, you could know what's the best time for something to do.



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Kakashi2020

The funny thing is plans usually don't work the way you plan it to be. That's why a businessman or business owner should always have contingencies. There's too many factors at play to have a successful business and it's best to learn from mistakes and quickly adapt to the situation at hand.



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ajahcuizon

I guess the best thing you could do to be sure of your plan is to make a plan on both ways. Whether it will go yes or no, you should have a back up plan for it. So that no matter what happens, you still have everything undercontrol.



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kaushikangara

First of all, I wish you all the very best in starting your business. Becoming an entrepreneur is full of challenges and it has it's own set of positives too. Now, coming to the questions, risks are common in any business setup. To avoid them, here are few pointers:

  1. Do not invest too much. Start with a lesser capital and you can keep investing once you see growth in your business.
  2. Make sure you get your business insured. Whatever it is, insurance is a very important factor in mitigating loss.
  3. Do not choose a vague/not so popular area. You might want to experience but at the same time, you should keep in mind your career prospects.
  4. Do not trust people too much.



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Kakashi2020

I fully agree with number 4, trust should be given only by merit. Don't just trust anybody whatever their credentials are. Trust should be earned and not given and that means always be aware of people around you.



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Youngshark

Trust ought to be earned otherwise you will learn the hard way that trusting the wrong people can lead to massive losses.



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Jeane

  1. Make sure you get your business insured. Whatever it is, insurance is a very important factor in mitigating loss.
There are some places where the law demands that you insure a business especially if you'll have to hire employees. The insurance won't cover everything but at least in case you are sued by a disgruntled employee or customer, you can bounce back if insurance takes care of that.



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Kakashi2020

Start small and simple. It's easier to maintain and control a business if you start with one service or product, your role is to grow your business slowly but surely. Keeping it small will limit your expenses and keeping it simple will let you modify it accordingly to what the market wants.



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jpk0007

Well I think that doing a lot of research and surveys related to your business can be very helpful before starting any kind of online or offline venture. Doing these surveys will help you know about the various aspects related to the consumer behaviour in relation to your buisiness. You will also be able to know about your competitors in your business and it will definitely help in you strategising and planning for the future. Starting at a lower investment and gradually increasing the scale of business is always benefitial when you are starting a new business.



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Wenkx03

I suggest that start from a little business. For every business is a risk, you better not give all on you first shot. Dont get frustrated if your earnings is lesser than you expected. As a chinese businessman said. It's okay to earn less as long as it's consistent.



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emiaj55

This one I learned the hard way. Limit your loans. Get funding for what is in your business plan and not for anything excess. In short make a solid business plan, so you won't be swayed into doing what was not planned. Second of all, don't give away too much credits, give away's and loans in hopes of promoting your name. This move is pretty risky if you are running your business on loan.



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Jeane

Selling anything on credit is the fastest way to lose most of your money. This is another reason why it is always important to start a business in a place where you have neither friends or family. Same should work for service-based business too. I wouldn't do cash on delivery either.

Loans for business as you suggest should account for only a small percentage of your capital. In case your business collapses you wouldn't have a huge debt you'd need to clear.



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burgosmichael24

Just like what you said even the best contingency plan doesn't guarantee you of winning. Starting a business is like gambling, sometimes you win, sometimes you lose. I agree with their comments. Do not put all your eggs in one basket. Invest only money that you are willing to lose.



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ajahcuizon

Well, what I could say on this is that, invest only to the things that you know could help you and your business a lot. Always go with a marketing plan, better to fight prepared. Also, do things according to what you want as people who follow their heart tend to be more successful in what they are doing.



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thejoyrevolutio

All business is subjected to loss. There is always a possibility that your business will not do well. I guess don’t invest all your money on the business. Save some money so that even if you suffer a loss you still have in your saving. Starting a business is always a risk.



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rose61

Business can either make or break you.Doing enough market research before starting out is good.The most successful businesses provide a solution to people's needs...and that's the question the entrepreneur should ask themselves prior to starting business. "What are the needs of the customers"OK somewhere along the line,the business should keep the upcoming trends to avoid becoming irrelevant.The kind of staff that run it also also determine how far the business will go.



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amelia88

I think the biggest thing like others have said is to not put everything into the business financially if it’s not something you’re prepared to potentially lose. Starting a new business can be risky but protecting yourself with your finances is important.



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knnon

A successful business man once said to me that you shouldn't use your money to start up a business. Meaning you shouldn't use your own personal savings to start one but rather loan from a bank or some other reputable sources. Why do you ask you should do this? Because knowing there's a high risk involved in the business you're venturing and there's a responsibility you need to pay off will be enough motivation for you to work even harder and make your business grow even more successful. Whereas, if it's your own money you've used, you'll only be content with whatever you get. Maybe he's right, maybe he's wrong but he does have a point.



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Bravosi

First of all, I think you should prepare a certain budget, and call it the limit of your expenses. Anything that goes beyond it is forbidden. To start a business you must go with an open head, minimize the expensves, and study all the prices on the market for it. For example if you want to own a store which deals in selling food, then calculate all the prices for buying that food and then reselling it.



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theresajane

I agree with you. A businessman should never put all of his money in a single business, because he might go bankrupt if something unexpected happens.



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Bravosi

Yeah, I even have a family member with that experience. He, my uncle, wanted to start a Humus (Israeli/Arab food) production in Eastern Europe. He bought a lot of ingredients and hired people to make it inside a small fabric. The Humus was delicious, but he didn't put any effort in doing enough advertisement of it, so eventually he gave up and the fabric closed. He didn't calculate his budget properly, as he should have.



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overcast

I think one can't have loss free business. To some extent you can reduce the loss but that is not completely possible. You just have to understand that part. Because each business has few variables which often don't work out the way they are meant to. And that in itself is a bit harder to understand. I'd say people should focus on customers as that is what keeps the business alive.



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emiaj55

I agree. This is a good point that a lot of new businessmen are having a difficulty of understanding sometimes. There would always be pitfall, or failures of some sort that could lead to losses. But as long as your customer satisfaction is up, you could always build and grow your business.



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overcast

Some money is going to be in loss. And that's not easy to minimize. For example food business, will have some waste. And we can't do anything about it. You have to keep those things in mind and then start the business. That's how we have to assume while looking at some business.



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esteban123

Yes I agree that we should not put all our hard earned money into one basket because we will never know what might gonna happen to our business in the future. It is better just to be safe to invest our money to different business so that we are assured that we will not lose everything whenever we experiences some financial crisis or lose in our business.



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Alymae

When it comes to investing money, nothing is sure. What I would suggest is to invest what you can afford to lose. Investing everything is not a wise idea because no one can predict where the market will lean. Do not ever, ever invest everything just because the company promises that you are going to grow your money.



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burgosmichael24

I think we should understand that nobody starts at the finish line. We need to invest and take a risk but with a better marketing plan. Through this, you are equipped with a plan as you go on your journey.



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Judas2018

One way to reduce great loss in business is not to spend money on worthless advertising services, or overspend on upgrading your site or components. Just because you have to spend money to make money, doesn't necessarily mean you have to 'spend like Mr. moneybags.' If you overspend on your website upgrades, then you'll need to make that money back and then double it, in order for the revamp to have been worth it.



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Alymae

Yep. Sometimes your revamp won't even pay off. It will be a very big loss. You should spend accordingly. It is good to improve your site but be careful of how much you spend.



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theresajane

You are right. You should spend your money wisely. Thus, you always have to have a concrete business plan and consult whoever is best in the field. Don't let your money be put to waste.



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amelia88

In this day and age there are so many ways to get your name out there for free - social media marketing for instance - that to me it's silly budgeting for advertising if you simply don't have the money to do so!



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menchuuy58

Basing from my own experience, you will minimize risk for a loss in business if you really secure your products from thieves. Secondly, you really have to force your way to collect money from people who have not paid their debts. As much as possible make a business that is on cash to cash basis.



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anyone01

First of all by way of coming into in to business with a right business strategy after cautiously study. Having right and suitable checks and balances in any respect degrees of the business strategies. Hiring proper ratio of clever and hard workers.



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Barida

Checks and balances is the aim that every business should try to work on. While it is not always easy to control, I believe that this is something that we should thrive to have when we are talking about success of every business.



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vhinz

Start a business that you totally understand the product or services and your target market. Never go into a business that you only know partially. A solid plan is very crucial before start a business. You need to know how much time and capital you need to invest in your business. Conduct a thorough market research on the products and your market to see if your business has a chance of succeeding. Knowing the demands of the products or services will give you an idea if it is profitable or not. Because no matter how great your products or services are, if only few people needs it, your business will not sustain in the long run. Manage the business and your finances effectively and efficiently.



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theresajane

I agree with you. When you are very much familiar with the field that you choose to be in, everything would be heavier. It's easy to think about that first before anything else.



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menchuuy58

I think you should not put all your money on that business. You really have a big savings in the bank that whatever happens to your business, you still can move on to the next.



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Martinsx1

Well, not putting all of your eggs in one basket is one way to prevent losing all your investments in a new business.

But also before making any move into starting a new business, it's very important to have all the information about the new business before jumping into it.



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luv2xacosta

I think if you are planning in putting a business it is good if you will conduct a feasibility study.From your feasibility study, conduct a survey if about your product if how willing the costumers will take it. In feasibility study you would know how much money you would need in putting a business, staffs you would need, and how long the turn over of your business. If your study is feasible then your business not loss ahuge amount of money and it will not turn into bankruptcy.



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Franzel2oo

I won't say "do not put all your eggs in one basket" I'll say "invest only money you can afford to lose". Businesses are never guaranteed to succeed like you rightly put it. sometimes, it doesn't really matter what you do. There are always external factors that are out of your hands. It also gives you a cool head when you are prepared to lose your capital. That way you are able to make sound decisions rather than emotional ones. Of course this is only one small part of the work you have to put in to make a business work. There are all the planning, research and marketing phases to handle. And that's still just the beginning. Good luck



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jaymish

Million dollar question. I know that this is a big worry for those of us that are in the process of starting a business. I agree with the first comment that the number one way to minimize the risk of any business is not to put your eggs in one basket. I watched a talk by Les Brown that advised that millionaires have on average 13 different types of income. In my opinion this is the way to go. However remember that business is a risk and the more you run a business the more you learn, knowledge is a good way to minimize your risk.



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