From inspirational posters to vision boards, heart-tugging movies to motivational speakers, everyone encourages you to take that big risk. There is a sense that when you ditch your boring 9-5 job and strike out boldly doing something you love, your life transforms. You feel fulfilled. You are more relaxed. Best of all, you make tons of money! Right?
While there are a handful of people that took a giant risk and reaped a great reward, there are thousands that took that risk and completely failed.
When you are an entrepreneur, risk taking is part of your business. However, there is a big difference between taking a risk and taking a calculated risk.
What is a Calculated Risk?
A calculated risk is a risk that has been assessed in terms of probable failure and the consequences thereof.
Why are Calculated Risks Important for Entrepreneurs?
According to the Government of Canada’s Key Small Business Statistics, “On average, 95,000 businesses were created every year between 2010 and 2015; and 85,000 disappeared.” The risks of starting a small business are very high. The money, time, effort, and resources it takes to sustain a small business are greater than many people realize. When one runs confidently in the direction of a “good idea” without a sound business plan and capital, it doesn’t matter if it’s a wonderful idea. It will likely fail.
Entrepreneurs must take calculated risks in order to beat the odds. That means having a business plan. Securing capital. Finding the best fit for business partners and employees. Communicating with friends and family about your schedule and need for emotional support, all while taking the time to keep your body and mind healthy. Without such attention to detail, failure is right around the corner.
But What About Those People That Just Got Lucky and Succeeded?
There is no denying it – some people just jump right into a business and enjoy wild success. However, some people just buy a lottery ticket and win millions. Canadian lottery players have a 1 in 292 million chance of winning the Powerball Jackpot. Powerball winning combinations come from 12 million potential numbers. In Ontario alone, 2016 lottery ticket sales were $3.79 billion. You don’t hear about the millions of unsuccessful players, you only hear about the ones that beat the odds. Some people get lucky. Most don’t.
So, if you think you can beat the odds on a risk that affects you, your family and your employees to the degree that a small business does, think again.
Risk is unavoidable in life, and especially in business. However, how you approach this risk makes all the difference. Hoping to be one of the lucky few that dives into a venture without research or resources may pay off – but it also may bankrupt the company, put your employees out of work, damage your personal and professional relationships, and cause you undue hardship. Before taking those big risks, calculate your odds and mitigate as much of the risk as possible. Then, and only then, are you more likely to succeed.
AF Accounting provides more than a complete suite of services for Canadian small businesses. We are passionate about helping entrepreneurs with the accounting tools they need to succeed.