As a startup entrepreneur, financial risk is an ever-present concern. Whether it's managing cash flow, forecasting revenue, or raising capital, there are a multitude of challenges to navigate in order to keep your business on track.

In this blog post, we'll explore seven proven strategies for reducing financial risk as a startup entrepreneur. From building a strong financial foundation to diversifying your income streams, we'll cover a range of tactics that can help you minimize risk and maximize success.

Whether you're just starting out or well on your way to building a thriving business, these tips will help you navigate the financial landscape and keep your startup on a steady path to growth.

1. 6–12 months of savings

Unlike freelancing, for example, startups necessitate the development of a new product followed by the identification of a market for it. If you succeed, there's a good chance you'll succeed significantly. But, let's face it, the odds are stacked against you because 9 out of 10 startups fail.

You have no idea how long it will take for the company to start making money when you first start. You will need at least 6 to 12 months of savings to survive during that time. This will give you enough time to test out various ideas.

2. Backup plan

If your company is doing well and you believe it has a good chance of success, it is one of the worst feelings to abandon it due to financial difficulties or other issues.

It pays to have a backup plan in case something like this happens. This backup plan may not be ideal for you, but it allows you to build your business with less financial stress.

3. Income streams outside of your startup

Being able to earn money when and where you need it can make or break your financial security. Working for a full weekend to earn some money is far superior to being broke.

It's difficult for a startup founder to take a break and work on something else. However, being broke and under constant financial stress is not beneficial to your startup.

4. Plan to pay yourself

As a founder, your job is to provide for your startup and give it a chance to succeed. The founder's job is so important that it cannot be matched by any single employee's effort in many cases. Not even by a group of employees.

You must first pay yourself. It doesn't have to be much just enough to get you by. In financial terms, all of the time and effort you put into your business is essentially creating an asset and, hopefully, multiplying your net worth.

However, you require a salary, even if it is symbolic, in order to be financially secure. Financial security enables you to put forth your best effort in building your company.

5. Minimize personal expenses

When you start your own business, you will need to learn to make sacrifices, including reducing your personal expenses. Fortunately, because startup founders spend the majority of their time working, this issue will resolve itself.

6. Be capital efficient in your company

We believe that being wise with your personal finances goes hand in hand with being efficient at work. Excessive spending in your company can easily lead to a spending spree outside of work.

Every penny counts when you are building a company as part of your long-term wealth. You should keep an eye on both your business and personal profit and loss statements to ensure you are on the right track.

A startup requires time to succeed, and one of the most common causes of startup failure is when the runway runs out. Both your company's runway and your personal "runway" are relevant. You must ensure that you have several months of survival ahead of you so that you can experiment and build a business.

7. Don’t drain your personal finances

Starting a business can have a significant impact on your personal finances because unexpected expenses arise all the time. It's critical to stick to a strict budget and invest in your business accordingly.

However, if the company failed, they would be saddled with high-interest debt. Some founders believe it is worth the risk to have a chance at success, while others believe it is better to be financially safe and try to succeed in the long run in a more organic way.

Conclusion

Abandoning your job with no savings to start a business is not for everyone, and it is certainly not for me. When you are under serious financial stress, it is extremely difficult to build a great product and serve customers, so it makes sense to secure yourself before venturing into entrepreneurship. Don't take this advice literally, as each of you is unique. But, at the very least, if you're going to risk everything to start a business, you should know what you're getting yourself into.

About Jordensky

At Jordensky, we are committed to providing an experience of the highest caliber while specializing in accounting, taxes, MIS, and CFO services for startups and expanding businesses.

When you work with Jordensky, you get a team of finance experts who take the finance work off your plate– ”so you can focus on your business.

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