A while back, Laddie was approached by a business owner who had the chance to buy another business that would complement the current operation.
He was in a quandary because it looked like a great opportunity but it also carried substantial risk that would impact his existing business. He hated to lose the opportunity but was concerned about what it could mean if things didn’t go well. He couldn’t decide whether it was worth taking the risk.
If you own a business, you’ll probably be faced with a similar dilemma at some point because opportunities arise all the time. Companies come on the market; competitors close and want to sell equipment; mergers and partnerships look attractive; real estate becomes available; or you have the chance to hire a potentially great but expensive employee. All may appear promising but involve a gamble. As each opportunity comes along, you will have to decide whether or not to take the risk.
In business, risk affects your company’s financial health but it also impacts you personally, emotionally and professionally. It affects the company you’ve worked hard to build, your livelihood, and your future. So when contemplating opportunities, it’s important to step back and analyze your ability to cope with risk and how you might be impacted by it. We recommend looking at four key areas:
Emotional. How will you handle the risk personally and emotionally? For example, some business owners can maintain millions of dollars in debt without losing a wink of sleep while others stress over a few thousand dollars in debt. Some people can emotionally handle fast business growth but others have a low risk-tolerance and need to take it more slowly. You know yourself better than anyone else does and are the most qualified to determine how you’ll be impacted by taking the risk. If you think you’ll lose sleep over it, worry excessively, regret your decision, or the situation will negatively impact your family in any way, then the opportunity probably isn’t worth it
Reward. What reward can you obtain by taking this risk? As with any investment, your reward should be relative to the risk. The bigger the gamble, the greater your return should be. If the risk is an amount of money your company can easily handle or chances are low that you’ll lose the investment, you might be willing to accept a lower return. But if the opportunity you’re considering could put your entire company in jeopardy, then you shouldn’t even contemplate it unless the potential reward is substantial.
Control. How much control will you have over the risk? For instance, if you’re the sole owner of a business, you will have control over how the company is run and what the business will or won’t do. If you have partners, you’ll have less control. And if you’re merely an investor, you may have little or no control at all over business operations. When considering risk, you need to decide what level of control you can comfortably accept.
Other opportunities. Are other options available that would be a better match for you and your business? Even if an opportunity offers low risk and reasonable reward, your business has finite resources that need to be committed to the best things. If other options exist, determine which one would be the most favorable.
If you’re going to be a business owner, risk is inevitable. By taking the time to process risk in each opportunity, you will find that it becomes easier to determine whether the risk is right for you and your business.
Laddie and Judy Blaskowski are partners in BusinessTruths Consulting, Inc. and several other businesses, and authored The Step Dynamic: A Powerful Strategy for Successfully Growing Your Business. They can be reached at Judy@BusinessTruths.com.