The initial steps in commencing all business activities are very important. Opening an own company is one of the most enjoyable experiences any person would wish to chip in. However, the process is accompanied by numerous risks, the notion that keeps many individuals off the track. The risks should not be a source of fear to the individuals aiming at initiating a company, but should strengthen them into seeing the success of the enterprise. Individuals should be aware of the possible risks before commencing the project. This will provide a good way out, once subjected into the risks. Risk Management is a simple way for focused persons in the business industry (Crusto, p. 381). Some of the risks involved when starting a business are highlighted below.
When business related risks are mentioned, financial risks ring in the minds of many individuals. For a person to start a company, he or she is required to gather the necessary materials, which could be in the form of cash or equipments, in order to succeed in the initiative. However, many individuals ignore the step and proceed from their point of view. Although nobody would wish to lose money, these sole business persons are not aware of the possible financial risks accompanying them. Financial Risk could also be brought about by improper management. This is pointed out by the fact that many individuals aim to start their own company without setting goals and laid down procedures towards the company’s objective (Crusto, p. 381).
Impact on the Company
Financial risk adversely affects the company in a negative way. In a sole proprietor company, the risk is facilitated by insufficient finances. It is likely to find few investors in an own company. This translates to insufficient funds that aid in the smooth running of the company. When a sole proprietor company lacks vital materials of production, it automatically lands in financial crisi. This could include un-honored debts and liabilities or loans from banks; leading to the company’s breakdown, and hence disrupting the original intention of the enterprise (Hoecht & Paul, pp. 672-681).
Individuals opening a company could be faced with the risk of physical damage. Normally, the risk affects the innovations of the sole proprietor. This could be because the proprietor does not have other persons to make consultations from. The risk could also occur as a result of natural disasters like floods, fire or burglary (Hoecht & Paul, pp. 672-681). It is not easy to predict when such calamities can occur, hence business individuals are advised to insure their enterprises with familiar insurance companies to guarantee compensations in the case of such calamities.
Impact on the Company
The Physical destruction of a company has a greater impact on any company. It has been noted that this type of risk leads to dissolution of a company. This occurs because most sole traders do not insure their companies at the beginning of the company activities (Lussier, pp. 10-17).
Chance of Failure and its Impact on the Company
The high chances of failure in a sole proprietor business put the company at risk. The services of a sole proprietor company are in many cases not good enough to persuade customers to buy their goods. This is in relation to the insufficient capital and lack of essential equipments of production. As a result, the company does not thrive in the marketplace due to the low quality products. The risk of failure is associated with the stiff competition in the area of its location. The company does not have the potential to emulate products from competing companies, which makes it to fail, hence resulting in termination of the entire process (Bebko & Charlene, pp. 9-26).
Reasons for Not Opening an Own Company
From the risks incurred in opening an own company, it is not advisable to operate a sole proprietor business. This is because the mistakes of employees are extended to the slowed progress of the company. It has been noted that sole traders have little incomes. It is from the little profits where employees’ salary is derived from. When the company has little to give to the workers, issues arise, leading to the company being taken to the court, which is a bad image of the company. Consequently, it leads to increased loses to the company, hence company breakdown (Haber, et al., p. 17).
Solution to the Risks
Many people have always longed to open an own company but have been discouraged by the numerous risks incurred. The risks can be solved with the use of business plans before starting a company. A company with a good foundation will definitely prosper. A business plan will help the owner of the company to evaluate the sources of capital and other necessities. Another method of solving the risks is through awareness creation to the participants of the company activities to prevent conflicts and shame to the company. An excellent way of working the risks out is through insurance on the possible risks. Once the risk occurs, compensation is regarded, hence the company does not breakdown (Singh & Amalesh, pp. 177-183).
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To possess a strong own company, people ought to have good Management skills. Risks related to finance could be avoided with the use of proper institution of methods. Since sole proprietor companies are faced with many challenges, they are advised to find for possible means of evading the risks before they appear. These sole traders should also make sure that they build a good communication network with thriving companies, in order to get help in the case of calamities. Company insurance is a step that all sole traders should practice to build strong foundations for their companies, thereby preventing company dissolution.