• Managing risks is a constant factor for any business.business colleagues preparing for business meeting image by Vladimir Melnik from Fotolia.com
  
  Any business constantly manages risks and rewards. Even businesses in outstanding financial condition with steady cash flow and lucrative markets still face risk. Managing risks is part of any successful business plan and involves monitoring, adjusting and assessing situations. Risks that produce little to no reward should be avoided while profitable risks can be repeated if the terms and conditions are similar. A business that completely avoids risk rarely grows. In fact, risk-averse companies tend to fail because competitors who take on more risk are able to capture more market share.
  
  

Debt

• The leading risk any business assumes is debt. Debt comes in many forms: Real estate, capital expenditures, employee payroll and benefits, taxes, insurance and vendor account payables. Anytime a business assumes a debt of any size, the objective should be making more profit than what is paid in the total debt. The old axiom, “using other people’s money to make money,” is all about assuming debt to create more profit. Debt that doesn't produce any profits should be avoided. Examples include certain types of loan consolidations or refinancing options in which the short-term gain of a small monthly payment is offset by a long-term profit loss. Always weigh the profit and loss of any debt–especially if the loss exceeds the value of the debt.
  
  

Factoring

• Factoring is a way for a business to give up potential profit for a short-term cash infusion. Factoring involves selling customer receivables (money owed to a business on account) at a substantial discount to a third party that will collect the full amount from the customer. The discount can be severe, as much as 50 percent or more. When you consider factoring, assess the risk of lost profits against your current needs. If the business is near failure and there is a large amount of money owed, factoring accounts can be a necessary means in staying open. Having some money is better than not having twice as much. But don't factor an account just to pay off a short-term cash crunch. Losing the full profit from a sale means losing money that will never be recovered. Strategize how much potential profit you're willing to lose.
  
  

Expansion

• Expanding a business always involves risk. Whether opening an additional location, adding more equipment and employees or developing a new product, there always is risk. However, before you expand and assume this risk, verify that your current resources and assets are maximized 100 percent. Expand a business if you're losing profit because there is not enough production capacity. Do not assume the risk because you think more business automatically result from expansion.