Lawrence Tanner, Negosentro | All business is risky, but some businesses inherently come with a particularly high degree of risk. Banks, merchant account providers, and other invaluable partners and suppliers are typically less interested in working with high-risk businesses, making it even more difficult for some entrepreneurs to find success.
If you are wondering whether your business could be high risk, the following five factors might give you a clue. Fortunately, if you find out you do fall within that dreaded financial category, you shouldn’t fret: You can find financial services, anyway.
5 Reasons Your Risk Level Is Rising
Plenty of risks within business are unforeseen and unforeseeable; they arise due to poor decision-making or fluctuations within the market. Some risks are calculated by entrepreneurs because they have the opportunity to be exceedingly lucrative. Both cases contribute to the overall riskiness of your business, as demonstrated by these five most common causes of risk:
1. Your Industry
Some industries are known to experience higher turnover rates. For example, restaurants tend to have shorter lifespans because it is typically difficult for eateries to distinguish themselves from competition. Because businesses in certain industries are more prone to failure, financial services providers are less likely to work with them.
Additionally, if your industry is incredibly niche or novel and unique, you are unlikely to find overwhelming financial support. Most investors want proof that your business idea is profitable, so if you are the first business of your kind, you won’t find many backers.
2. Your Expense
While all businesses need some upfront investment, your business might require excessive amounts of money and effort well before you or your investors know it will pay off. For example, new car manufacturers are few and far between because of the extreme expense of designing new vehicles, testing them, and building enough to sell — all before it is known whether customers will like or support the new brand.
3. Your Image
Most people view industries in different lights. For example, a grocery store is a wholesome and practical business whereas an adult entertainment company can be objectionable or at least controversial. Plenty of investors are hesitant to support businesses that might negatively impact their image. There are a surprising number of businesses that fall victim to this factor, including legal casinos or gaming sites, legal marijuana dispensaries and tobacco and vape shops, telemarketing services, dating services, and magazines. If you have a potentially scandalous business attached to your name, you will likely find it more difficult to find funding.
4. Your Experience
At some point, everyone is a first-time business owner. Unfortunately, first timers tend to make an inordinate number of mistakes, drastically increasing their riskiness. Plenty of entrepreneurs don’t find success until their third or fourth business endeavor, and financers are aware of the steep increase in knowledge and skill that occurs only after your first business attempt.
5. Your History
If you aren’t a first-time entrepreneur, your history as a business owner will impact your ability to run your current enterprise. Almost all financial services as well as most potential partners and suppliers will check your credit history — personal and professional — in search of risky events in your past. Some of the worst incidents are being branded a terminated merchant or having no credit card processing history whatsoever.
Where to Find Funding (and Other Financial Services)
Once you have determined that you are high risk, you can begin working against this label and procuring reliable financial services to bolster your business. How you go about this will largely depend on why your risk is so high.
If your risk comes from your industry’s inherent risk levels, there is little you can do to erase your categorization; even after years of successful business, it’s likely that financial services providers will still view you as risky. Still, you can find banks and other providers that offer solutions specific to high-risk businesses. These might include small-business loans or merchant services.
However, if your business is deemed risky due to your past behavior or lack of skill, you can immediately begin working to reverse that designation. First, you can improve your credit history by making more responsible decisions regarding your credit accounts. Then, you can improve your image as an entrepreneur by obtaining training in business ownership, perhaps by acquiring an MBA or similar advanced degree.
Running a high-risk business is an uphill battle, but it can be remarkably profitable if done well. Once you obtain the right financing, you should find it much easier to achieve success.