Smooth sailing: to manage your startup risk, put a plan in place to deal with any rough waters up ahead

Entrepreneur, June, 2005 by Nichole L. Torres

Though no business is free from risk and worry, there are a few ways to significantly lower the risk of typical startup hazards. Brad Forsythe, founder of Best Practice Advisors LLC in Milford, Ohio, and author of Bulletproof Your Business: Cutting Risk for Small Business Owners and Managers, shares his tips:

1. FOCUS YOUR ENERGIES ON WHAT MAKES YOU THE MOST MONEY. This limits your risk in that you're not spreading yourself too thin. If you allow yourself to be pulled in a zillion directions, you take away from what makes you profitable in the first place. Don't let off-focus opportunities derail you from your main vision.

2. DON'T BUILD A BUSINESS YOU CAN'T FINANCE. This is an issue that dwarfs other issues. Access to capital is vastly more important than anything and everything else. You've got to be very wise on how you approach your financing and secure as much startup capital as you can.

3. THINK AHEAD. By establishing plans for dealing with production delays or problems with vendors beforehand, you'll be able to defuse these issues quickly, without hurting your bottom line. "There are simple things you can do within your own company," says Forsythe. "Once you put [your contingency plans] in place, they'll last for a long time."

4. DRAFT LEGAL AGREEMENTS. Have standard contracts like noncompetes and nondisclosure agreements on hand to deal with your three main liabilities: employees, vendors and customers. Getting everything in writing limits your liability in case things go sour (like an employee leaving and taking two other top sellers with him).

5. DON'T FEAR RISK--MANAGE IT. Managing your risks--that is, limiting your liabilities and general exposure--keeps trouble at bay and gives you the freedom to innovate. "You've got to take those risks to expand your market," says Forsythe. Hiding from all risks, even the innovative, invigorating kind, can cause your business to get run over--which is an even bigger risk.