3 Risks Involved in Starting a Business

3 Risks Involved in Starting a Business

The startup economy is booming with potential, opportunities and innovations. Starting a business may be one of the best decisions you can make—financial independence, freedom of time, opportunities to affect change, and chances to pursue passions are just some of the many perks of becoming an entrepreneur. However, running your own business can also be riddled with challenges and risks.


Entrepreneurs who are just starting out must acknowledge that any business—regardless of the location, economic climate, industry, product or service offered, and market conditions—involves risks. With this in mind, it is vital for entrepreneurs to mitigate risks prior to commencing business operations.


Risk management is the process of identifying, assessing, and creating strategies to alleviate possible business risks. A sound risk assessment is the first step in developing effective strategies to address them. Entrepreneurs must have an in-depth understanding of the business landscape. While risks vary from business to business, there are also risks that are common among businesses. Below, you can find the most common risks in starting a business:

Market Risk

In a vastly competitive business industry and ever-evolving markets, entrepreneurs must constantly strive to stay relevant. Whether it is a product or service you are offering, it is imperative that you gain a profound understanding of your potential customers and their behavior prior to launching your business. A generous amount of time and effort must be invested in a thorough market research which will enable you to tap the right opportunities on-time and on budget, and tone down risks.

Financial Risk

Ample funding is critical in setting up a new business. The initial financial risk for startups comes in the form of raising enough capital to build the business from the ground up. However, financial requirements do not stop there. Enough funds must be secured to sustain business operations and address possible internal and external financial risks. Many first-time entrepreneurs overlook the possible costs that could take place beyond the operational costs of the business. This can result to monetary pitfalls in the early stages of a business. Some of the important internal and external financial risks that entrepreneurs must prepare for are changes in prices of commodities, an increase in interest rates, cash flow shortage, asset depreciation, and clients defaulting on payments.

Product Risk

Similar to market risk, thorough research on the business landscape must be conducted to lower product risks. Entrepreneurs must be able to convey how their product can fit within the context of this business landscape to increase the chances for success. Product risks refer to the risk of not being able to produce or deliver the product to its market on time and within the budget requirements of the business. Even when you are able to deliver the product, other risks can arise such as quality of the product.


Every business encounters a certain degree of the market, product, and financial risks. There are risks that you can mitigate while there are also uncontrollable risks. The important thing is gaining a clear assessment of possible risks and finding creative, practical ways to address them.