In today’s business world, it is more important than ever for entrepreneurs to brace for failure. According to a study by the Harvard Business Review, about 70% of startups fail. While this may seem daunting, there are ways entrepreneurs can protect themselves and their businesses.
Ultimately, entrepreneurs need to remember that failure is inevitable at some point. The key is to learn from mistakes and continue moving forward. With a bit of preparation and perseverance, any business can thrive.
However, it doesn’t mean entrepreneurs should accept failure will come. Since you can anticipate them, you can create solutions to negate or minimize their effects in the form of safety nets. These emergency protocols can ensure you don’t have to suffer from struggles and failures as much. However, you will have to identify what they are first. Here are some safety nets every entrepreneur should consider.
Diversified Income Stream
A diversified income stream is vital for business owners because it helps to protect them from any one source of income that dries up. This can be especially important for startups, which are inherently riskier businesses.
A diversified income stream can come from various sources, such as multiple revenue streams from a single business, numerous businesses, or various investments. It’s essential to have a mix of high- and low-risk income streams to protect yourself from any one source of failure.
Some examples of a diversified income stream include:
- Having multiple sources of revenue from a single business, such as product sales, services, and consulting.
- Owning various companies in different industries.
- Investing in a mix of high- and low-risk assets, such as stocks, bonds, real estate, and commodities.
By having a diversified income stream, entrepreneurs can reduce the risk of their businesses failing due to one event or trend. This can help them stay afloat during tough times and maintain control over their business’ future.
Of course, building it will require a lot of time and effort, especially if you have yet to start your first business.
An emergency fund is a savings account that entrepreneurs can use to cover unexpected expenses, such as a significant repair or unplanned marketing campaign. This safety net can help business owners avoid debt or using credit cards to pay for unexpected costs.
Ideally, an emergency fund should have enough money to cover 3-6 months of living and business expenses. This will ensure you have enough cash to weather any unforeseen circumstances.
To start building your emergency fund, open a separate savings account and make regular deposits. You can also set up automatic transfers from your checking account to help you reach your goal sooner.
Once you’ve built up your emergency fund, please resist the temptation to dip into it for non-emergency expenses. This will help you keep the money available when you need it.
Also, investing parts of your emergency funds in low-risk investments might be better. Money sitting in a bank account does not do you any favor. Fortunately, you can grow your emergency fund in a long-term bond fund to get a higher return without taking on too much risk. This safety net will give you peace of mind knowing that you have the financial resources to cover any unexpected costs.
A support network is a group of people entrepreneurs can rely on for advice, mentorship, or financial assistance. This safety net can be beneficial during difficult times, as it offers a sounding board for tough decisions and a source of capital when needed.
When building your support network, look for people with experience in your industry and who you can trust to give honest feedback. You can also look for individuals who have complementary skillsets to fill any gaps in your knowledge.
Some examples of people you might include in your support network are:
- A mentor who can offer guidance and advice
- An investor who can provide capital
- A trusted advisor who can give objective feedback
- A lawyer or accountant who can provide professional expertise
A solid support network can differentiate entrepreneurs’ success and failure. This safety net will give you the resources you need to overcome any obstacle in your business.
Business insurance is another critical safety net for entrepreneurs. This type of insurance can protect business owners from various risks, such as property damage, liability, and business interruption.
There are many different types of business insurance policies available, so it’s essential to choose the right one for your business. For example, if you have a brick-and-mortar store, you’ll need a different policy than an online retailer.
You can get business insurance through an insurance agent or broker. Be sure to shop around and compare rates before choosing a policy.
While business insurance can be expensive, protecting your business from unforeseen risks is worth the investment. This safety net will give you peace of mind knowing your business is protected.
The Bottom Line
Building safety nets takes time, effort, and money, but the peace of mind they provide is worth it. By taking the time to establish these nets, you’ll be better prepared to weather any storm that comes your way.