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Risk Reduction Keeping risks reasonable for where your business is. Learn what increases risk factors, and how to reduce them Risks always have a trade off. If you reduce one risk, you generally increase others. These ideas are just here to help you understand the trade offs with common options. Inventory Some businesses require that you store inventory. Doing so increases your financial investment, and also increases the complexity of tax reporting. There are a number of ways to eliminate an inventory, but each of them has a trade off. Inventory also increases risks when orders are unpredictable, and is especially risky when you have to stock perishable items. Having a small inventory of commonly needed items can provide extra convenience though, and it can also be an encouragement to you to sell items more aggressively. Equipment Do not purchase equipment that cannot justify itself in either increased income, or in necessary time savings. And don't go into debt for something unless you already have the funds to pay it off - do not count on increased business coming in to pay a debt that you have contracted solely on hopes. That is an unacceptable risk for anyone. Services When either contracting for, or contracting to perform services, you can make sure that the contract is written to reduce the risk for both parties. A good contract will balance the risks between the two so that neither bears the full weight of risk. Some contracts can be broken up into multiple phases, with payments due at the end of each phase - in this way, if satisfaction is not achieved, the buyer need not pay, but the seller does not risk more than a single phase of work at one time. Marketing Marketing is a huge risk if you pay for ads, and more so if you pay for someone else to do your marketing for you. The way to reduce the risk is by statistical tracking of your ad campaigns. You'll still have to risk the initial phase, but if sales do not increase, you can bail before the loss is too great. The same rule holds for marketing that holds for equipment - do not go into debt on the hopes that it will work, and do not spend more than you can afford to lose. Test each strategy with a small and affordable amount of money, and then measure results so you can either increase the effort if it works, or dump it if it does not. Any company that you hire should be able to give you some kind of idea of what your results should be in a trackable manner. If they cannot do that, then don't hire them. Location Different locations have different risks. In a small town you have less competition, but a lower customer base. Your business may have to be operated on a more conservative basis, and you will have to market outside the community. You can't afford to risk purchasing inventory that might not be bought. In a larger city you have more prospective customers but more competition. You may be able to purchase inventory or take other risks that a small town business could not, but you may also have to invest more in advertising, which means risking more. Conversely, some smaller communities, and some larger ones provide unique free marketing venues that others do not. Time When you start on a shoestring, all you CAN risk is time. So what is not a worthwhile effort for an established business may be the only way you get get started. Still, you want to do your homework and not risk time on something that is doomed to fail when you could be using that time on something effective. You'll need to focus your efforts and devote your time to efficient and strategic tasks, and not get distracted by other things. If you are producing an infosite, you may have to risk a lot of time producing sufficient information before your site is ready to install ads. And you'll have to market a long time to get sufficient traffic to get good hits. But, once it gets going, it goes largely on autopilot, even when life is hectic. You risk a lot of time initially to get it going, with no evidence of return, then you still risk a lot of time for very little return, and eventually it slowly turns so that you risk little time for good returns. Custom Orders A custom order store can reduce the risk of unsold inventory, and the risks associated with large startup investments, but it has risks of its own. You take orders, and receive payments, and then purchase and prep the items and ship them. You have to provide a good value to your customer or they won't be willing to accept the increased risk to themselves. The risk to you comes in when something goes wrong and the item is damaged before shipping, or requires a return.You need to have enough in reserve to handle potential problems. Drop Shipping Drop shipping can also reduce risks associated with inventory. But the trade off is that your reputation is tied to the way in which your supplier fills the orders. With a reliable supplier, you can do well with drop shipping. Good suppliers are hard to find, but when you do find one, this arrangement can eliminate many risks. Since the parent company handles satisfaction guarantees, you reduce many risks this way. If your supplier messes up though, you are the one who looks bad. Returns Any business that sells goods will have to have a return policy, and a means of handling returns. Guarantees feel very risky to a startup business owner. Give a good one though, and back it up no matter what it costs you. It will be worth it in the end because it will be more effective than many times its dollar value in marketing. Good return policies not only get more initial orders, they get loyal customers long term, and that will save you more than it ever costs you.
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