- Sole Proprietor – This is the simplest way to start a business by yourself. There are no forms other than obtaining a Federal Employee Identification Number, a local privilege license and opening a business bank account. However, there are no personal legal protections from your business nor are there any tax benefits.
- Partnership – Similar to sole proprietorship, except the partnership involves more than one person.
- Limited Liability Corporations – According to Nolo.com, a LLC is a business that offers the legal protection of a corporation with the pass-through taxation of a partnership. While the business owners continue to process the business taxes on their personal returns, the owners receive limited personal legal protection from running the business.
- Corporation – The corporation business structure is more complicated to start than other forms of business, but the main benefits include a limited legal liability from the business and different tax filing options for the business from the founder’s personal taxes. Starting a corporation can be complex, therefore advice and assistance from an accountant or legal advisor is suggested.
- Nonprofit – Starting a nonprofit requires the same steps in starting a corporation with the additional step of applying for a nonprofit tax status with the IRS. The most known tax exempt status is the 501(c)3. Additional information about becoming a nonprofit can be found at http://www.irs.gov/charities/index.html.
Many non-entrepreneurs want to believe that those who are entrepreneurs are also big risk takers. However, that is a myth. Entrepreneurs take the risk of moving from a job with a predictable paycheck to working a new lifestyle whose pay checks are a variable during the start-up phase. In fact, entrepreneurs are in the business of mitigating risks in order to achieve success.
In starting a business, there are many areas that involve degrees of risk, however the entrepreneur’s job is to utilize strategies to avoid or overcome known risks. In its simplest terms, risks are the threats to a business in achieving the organization’s business objectives. The following highlights the obvious risk areas, but other areas of risk may exist depending on the type of business and market place.
|Business Function||Risk Opportunities||Risk Sources|
|Finance||Not enough start-up funding, negative cash flow, theft, improper accounting, taxes, investments, weak market||Accounting, management, customers, employees, the economy, poor corporate structure|
|Technology||Unsecured corporate data, unsecured customer data, theft, knowledge loss, hardware theft, software theft, viruses/malware/spyware, data loss, hardware productivity loss||Computers, lack of data protection, lack of data back-up, lack of technology maintenance, employees, identity thieves|
|Marketing||Lack of viable market research to support sales projections, lack of a market for product/service, economic conditions, sales capabilities, poor market strategies||Lack of a marketing plan, lack of market research, the economy, poor sales strategy or sales execution, poor product/service positioning, lack of planning|
|Management||Poor leadership, no clear direction, employee discord, lackluster sales, theft, business failure, business growth||CEO, board of directors, advisory board, employees, market, economy|
|Employees||Theft, “brain drain,” missed deadlines, product flaws, vendor relationships, information leaks, lost productivity||Employees, employee buy-in, employee representation|
|Disasters (natural or economic)||Inventory loss, facility loss, data loss, man power loss, market decline, economic recession/depression||Natural disaster (flood, tornado, hurricane, fire), Economic recession/depression, manmade disaster|
Business Risk can be categorized in the following manner:
- Financial – protecting monetary funds
- Strategic – goals of the organizations
- Operational – processes that operationalize goals
- Compliance – laws and regulations
- Reputational – public image
Risks in business can be eliminated, accepted, transferred or mitigated. Every business must address risk management at some point early in the planning and start-up phase of the business. Risk management is the “identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate eventsor to maximize the realization of opportunities.”(Wikipedia, http://en.wikipedia.org/wiki/Risk_management)
Method – For the most part, these methods consist of the following elements, performed, more or less, in the following order.
- identify, characterize, and assess threats
- assess the vulnerability of critical assets to specific threats
- determine the risk (i.e. the expected consequences of specific types of attacks on specific assets)
- identify ways to reduce those risks
- prioritize risk reduction measures based on a strategy
Risk management should:
- create value
- be an integral part of organizational processes
- be part of decision making
- explicitly address uncertainty
- be systematic and structured
- be based on the best available information
- be tailored
- take into account human factors
- be transparent and inclusive
- be dynamic, iterative and responsive to change
- be capable of continual improvement and enhancement