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3 Business Worst Case Scenarios (and How to Deal With Them)

Risk aversion is something that every entrepreneur gets drummed into their cognitive processes very on from a very early stage.

It’s hammered home by business mentors and advisors; it’s reinforced by business lenders; and it’s echoed by advisors. That said, the very essence of entrepreneurship carries with it a certain devil may care attitude when it comes to risk. Let’s face it, most entrepreneurs have had to embrace risk to start their businesses. They’ve cast aside reliable and, in many cases, lucrative jobs and opened themselves and their families up to financial vulnerability. There’s a fine line that entrepreneurs must walk between avoiding and embracing risk. Calculated and responsible risk taking can reap huge dividends, but going into risky scenarios unprepared can lead to disaster.

In order to be fully cognisant of the best way to approach risk management, entrepreneurs often find it useful to envisage their worst case scenarios and either put contingencies in place for them or try to find the silver linings in them. Your definition of a worst case scenario will likely depend greatly on the nature of your business or your personal biases, but here are some of the most feared scenarios for entrepreneurs and how they can be turned to your advantage

Insolvency

Let’s start with the one that keeps entrepreneurs awake at night. Avoiding company insolvency is a matter of knowing and spotting the warning signs and having the cash flow to keep your business agile enough to react to small setbacks before they have the chance to escalate. Even if your company does become insolvent, it needn’t be the end. With the right advice and planning you can mitigate the damage and live to trade another day.

Losing loyal customers to your competitors

Every business begins trading with a clear view of how it will stand out from its competitors. They plan their branding meticulously, planning everything from their customer interactions to the shade of blue they use in their logos with absolute precision. Nonetheless, there may be times when, unbeknownst to them, their competitors can syphon business away from them. It’s a nightmare scenario, but one that businesses can come back from. Customers can be fickle and, if they were lured away from you, you can just as easily lure them back. Targeted marketing, special offers and individualised promotions can help to bring those customers back and keep them.

Losing a key supplier

In a precarious economy – no matter how well you protect your company from insolvency – it’s also important to keep an eye on your suppliers’ health. If they become insolvent, it can create a black hole of supply that’s insufficient for your customers’ demand. You can prevent this unfortunate circumstance from crippling your business by ensuring that your contract with your supplier has an ‘out’ clause if they go under or are unable to meet your demand. You should also keep an eye on alternative suppliers and, if possible, make sure that your insurance provision allows for protection from service interruption.

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