Entrepreneurship is All About (Active) Risk Management

Here are two key points that will empower entrepreneurs to successfully manage the biggest risk of all--cash flow.

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Until your company is generating healthy net-positive monthly returns, it is wise to stay in bootstrap mode. In other words, the only money spent should be what is absolutely necessary to create the company’s product or service and take it to market.

Bootstrap mode may not be the “most fun” experience, but it is necessary, and it will often make the difference between a business idea and an actual business.

2. Know Your Burn Rate

A second temptation entrepreneurs face is to never look at the numbers.

Some startups believe, “If I just keep my head down and keep moving forward, we will make it. The numbers are depressing, so I don’t need to look at them.”

This is disastrous.

As a small business owner and leader, you should always have a direct pulse on the cash position of the company and how cash is flowing in and out of the company.

One of the most important numbers is the burn rate. This is the amount of money you are losing each month. If you divide your cash reserves by the burn rate, you will get the max number of months the business can survive at the current trajectory. Know this figure at all times, and be proactive about cutting expenses in order to extend the lifeline of the company.

Entrepreneurship is a great challenge.

Put yourself in a position of power by taking a proactive stance toward active risk management and seek to manage your cash risk by consistently keeping expenses low during the early stages of your company’s growth.

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Photo: Blanco

Danielle Thomas is a graduate from Marshall School of Business at the University of Southern California. Danielle is an entrepreneur, freelance writer, and researcher who covers a wide range of topics for www.processingfinder.com with a particular interest in technology, the Internet, and emerging business systems of the 21st century.

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