We often get to hear a maxim, “Hope for the best, but prepare for the worst”. In your path to become an entrepreneur, you are meant to operate the same way. Regardless of all the hard work and expectations attached, you can’t really say if you would fail or pass. But you need to prepared for it else you won’t be able to digest the truth. Nevertheless, if you achieve success, you’ll be that much more able to manage business risks.
What does planning to fail look like? These five steps can help you boost your chances of success.
1. Have a savings safety net
Irrespective of what happens to your business, putting up safety nets protects you at a personal level. To begin with, your emergency savings account is the best place. Experts often suggest setting aside six months of living expenses. However, the better advice is to think about how much cash will be needed in the worst-case scenario. Think of any kind of damage done to your home by some natural disaster or economic recession.
In that case, there is no need to panic. The good thing is that you don’t have to come up with the cash all at once. For reaching your saving goals, consistency is more vital than a single, large cash transfer. Always keep this in mind that your emergency savings account is for emergencies. Attractive as it may sound, don’t invest it for any transitory business needs. If your business fails, you’ll be glad you resisted.
2. Insure everything
When disaster strikes or any such mishap takes place, a good insurance policy can save you from a lot of hassles. Make a valuation of your business assets, and get them insured when possible. General liability insurance is helpful to keep everything from lawsuits to natural disasters from bankrupting your business. Put the cost of insurance in perspective: A Rs 3500 monthly premium would only cost you 42000 a year. But if a Rs 4,20,00,000 incident — which isn’t unreasonable for medical expenses, legal fees or commercial building costs — occurs that year, your premium will have paid for itself a thousand-fold.
Don’t make the mistake of thinking it can’t happen to you. All businesses go through rough patches in their journey. It’s the successful ones that cover their bases before disaster strikes.
3. Use benchmarks to cut your losses
Entrepreneurs are some of the most driven people in the world, but running a profitable business takes more than a mundane work ethic. They know their limits and acclimatize themselves as per the requirements. You can’t win every battle. Set parameters for projects and initiatives to determine when it’s time to pull the plug on them. If you’ve already invested Rs 50, 00,000 in new product development, ask yourself: Should I keep going? Will the payoff still be worth it?
Decide on a profit target for your product before you start building it out. That way, you know exactly how much you can spend before the project becomes unprofitable. Treat current products the same way. For instance, if your product doesn’t clear a particular sales limit by the end of the quarter, should it be discontinued?
4. Build trust with financial projections
Running a successful business takes a whole lot of things. Employees, partners, investors, and colleagues are key to your success. You have to win these people over. If they’re going to invest in or work for you, you have to create a trust that their livelihood is secure. Practical, steady financial projections prove that you’ve thought through the what-ifs, building trust. It takes a whole lot of efforts to build trust but is easy to lose. Update your projections quarterly. Transparently sharing the numbers boosts stakeholders to maintain their confidence in you.
5. Keep tabs on trends
The success of a business depends on the society around it. Even the most innovative product won’t sell in a recession. You have to think beyond top-line economic numbers. For example, life expectancies are taking a sharp curve around the world. As per a report, Stanford University and learning platform Canvas’s joint Longevity Project is studying how everything from workforce demographics to retirement to healthcare may have to shift. Keep an eye on data to learn how, for instance, you can future-proof your hiring strategy.
Planning for failure is planning for endurance. Neither Rome was built in a day nor would your business be. So, don’t be discouraged, but do realize that entrepreneurship is a long, risk-filled road.