How To Make Risky Decisions for Small Businesses

Posted by Paul on June 25, 2021

How to Be Bold and Make Risky Business Decisions

Let’s face it. Risk and business go hand in hand.

You can’t run from the reality that sometimes you need to take a risk to scale up, boost your profits, or grow your brand. However, you can endeavour to make as many smart and calculated decisions as possible. How you handle the risks you decide to tackle can make or break the success of your enterprise, so it’s important to choose your courses of action carefully.

You might have years of experience in small business ownership under your belt already, or you might just be starting out. Either way, taking risks can pose a daunting obstacle.

Without taking risks, your company may never have the opportunities it needs to move in the right direction. The key to making smart decisions around risks is to weigh up the risks versus the potential benefits and to make your decisions based solely on concrete facts.

It’s always a good idea to remember that there’s a thin line between making bold decisions and taking large, unnecessary risks. One route could leave your small business in hot water, while the other could lead to astounding and perhaps even unexpected success.

As the owner of your business, it’s up to you to decide if a decision is worth making. Is it worth the risk, and can you handle the worst-case scenario if it comes to fruition?

Embrace the Duality of Decision-Making

As a business owner, you’ll need to be brave and bold, especially if you’ve recently launched a start-up in a highly competitive industry.

Some owners may use their reputations and their own capital to get their ventures up and running. Others will need to take debt-related risks to achieve the same feat. Either way, you will need to put yourself and your ideas out there confidently to stand a chance of reaping the rewards you’ve dreamed of.

Planning for the Worst-Case Scenario

It’s only natural to hope for the best when making risky decisions. However, it’s a good idea to be realistic. Not every decision will produce the results you expected, and some may go awry despite your best intentions.

Business owners who dive into big decisions without properly researching and planning them are taking unnecessarily large risks. Planning is essential in mitigating risk and maximising your chances of success.

Seasoned entrepreneurs can usually view a decision from all angles, including the best and worst-case scenarios it could lead to. It's unpleasant to think about worst-case scenarios, but it is often necessary. By understanding the worst-case scenario in a situation, you can critically assess whether your business will survive should it come to pass.

Ultimately, planning and researching your decisions before you make them can diminish the risks attached to them and preserve your business’s financial and operational security to a certain extent. Planning may also assist you in realising that the risks are too large for your means and that it would be better to take the road of caution instead.

Practising Your Decision-Making Skills

The more you make potentially risky decisions, the easier it will become to do so. With months or years of perseverance, you may eventually be able to make major decisions for your business without being too overwhelmed by the implications at hand.

As your company progresses, you may find that you won’t need to do as much proactive research and planning before you make these choices. This is because over time, you’ll become more knowledgeable about your industry and its ins and outs and will find it easier to imagine and compare potential outcomes more efficiently.

Chances are you will have more prophylactic measures and contingency plans in place to protect your venture from avoidable risks.

Knowing When to Act and When to Stall

Some risks are simple enough to evaluate, like the implications of not having a security safe for important documents when your business deals with highly flammable chemicals. Another example is choosing to upgrade to an initially expensive supply chain management system that will boost your productivity exponentially in the long run. In both cases, the benefits obviously outweigh the risks.

Taking action is easy enough in these scenarios—but not every situation is as clear cut. Too many business owners get too wrapped up in the minute details of a decision rather than focusing on the big picture. As a result, they miss their opportunities to take action.

It’s no use waiting too long, or waiting for the ‘perfect’ time, to make a big decision.

There will never be a perfect time to act, but planning and research can help you identify the most optimal windows of action possible. Research potential outcomes, seek advice from knowledgeable third parties, account for the worst-case scenario, and make your move.

Informed actions that do not prove beneficial are still driving your business forward, while inaction simply stagnates its progress.

Make Smaller Phased Changes at First

If you’ve got a small business to run, you already know that your resources are limited. It’s challenging enough to maintain healthy cash flow and find the capital necessary for expansion without added financial pressure due to risk. You won’t always be able to take big risks, and this is especially true if your business might not be able to recover if things go south.

You can navigate these challenges by implementing a phased approach to risk-taking. Make small, steady changes, and take smaller risks over a staggered time frame and you may well reach the same goals as you would by taking a single massive leap—only without the equally astronomical risk attached.

Making small decisions and changes will assist you and your team in building a strong tolerance for risk as well. You can take opportunities between these micro-decisions to recuperate your resources and stabilise your business to the point where it’s ready to take on the next phase.

The Takeaway: Embrace the Uncertainty of Decision-Making

Every decision comes with a risk of failure, and there’s simply no way to avoid it. However, if you never take action and make risky decisions because you’re avidly avoiding failure, your small business may never reach its full potential.

Entrepreneurship poses endless opportunities for risk-taking and making major decisions, and the more of these decisions you make, the more experience you will gain. This experience will allow you to expand your business in the right direction and to make smarter decisions in the future, regardless of their outcomes.

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