If you are tired of the daily grind of a regular job, you may have thought about starting your own business. But you then considered the risks and thought better of it.
Investing your life savings or home in a new venture that might fail is a considerable risk. Quitting a secure full-time job is a big step, too.
Still, if you want to be an entrepreneur, you must start somewhere.
There are risks involved in starting any business. Indeed, it is a well-known fact that 50% of new companies fail within the first four years.
There are, however, businesses that can launch with a minimal initial investment and negligible risk, letting you test your entrepreneurial flair in a low-risk venture.
The first step is to understand what constitutes a low-risk venture.
Identifying a Low-Risk Startup
There are several things to consider when assessing the risk of a new venture, and there is more to the equation than the amount of money you will need to launch your business.
Here are the primary factors to consider when looking for a low-risk business venture.
Low Startup Cost
The start-up costs are the items of expense needed before the business begins trading. These costs will include equipment, a website, printed stationery, and raw materials. It is also advisable to factor in ongoing expenses for the early months of trading when sales are likely to be slow.
If the business were to fail, you would lose the initial investment to cover these start-up costs. Consequently, a company with minimal start-up costs will be less risk to your personal finances.
Low Exposure to Debt
Of course, what you consider high start-up costs may be reasonable to someone else. It’s difficult to put a number on what constitutes a low figure. However, one tip for everyone that wants a risk-free business is to avoid borrowing to set up the venture if you can.
Once you borrow, you will need to repay that debt. And if your business does not generate sufficient cash to meet the repayments, the business will fail, or you will have to inject additional money into your company.
Minimal Fixed Overheads
Fixed overheads do not vary with sales, for example, rental payments on business premises. As soon as you commit to any fixed overheads, the business must achieve a certain level of sales to meet those costs. If your new business cannot meet those costs, the company will be at risk.
Ideally, the lowest-risk business would have no ongoing costs whatsoever. However, that is impossible. Still, to minimize risk, it is best to look for a venture with minimal overheads.
Zero-Day’s Working Capital Cycle
The working capital cycle is how long it takes to turn current assets into cash. Typically, this means the number of days it takes to turn inventory into cash. If you are selling stock items, you must maintain stocks at a certain level to meet demand, and it will take time to sell that stock. Consequently, you have money tied up in inventory.
Then, if you sell products on credit, you have a further 30 days or more delay before seeing the cash, adding to the funding requirement. You also have the risk of suffering bad debts when you grant credit.
The safest business model has zero days’ working capital cycle. So, ideally, you are looking for a business that does not hold inventory or offer credit sales.
Entering a market with a revolutionary product is best left to those with significant capital or backing from external investors. If you want a risk-free business, you would be better off going with a product with an established demand in a market you can reach. It is also advisable to avoid targeting something that is potentially too niche.
If you want to play it ultra-safe, a business that you can run part-time would be your best option. Then you could run the venture as a side hustle until it can support you full-time.
Alternatively, you could start full-time and have the option of taking on other paid work should the need arise.
Low-Risk Business Ideas
You might think that finding a business that meets the above criteria would be challenging.
However, there are low-risk business opportunities that meet all or most of the above criteria; here are five examples:
01 Affiliate Marketing
Affiliate marketing is an opportunity that anyone can try. The start-up costs and overheads are low, limited primarily to the cost of developing and hosting a website.
And affiliate marketing is commission-based, so there is no stock and no credit sales. However, it can take a long time to develop a website that generates a reasonable affiliate income.
The alternative is to create one-off landing pages and a pay-per-click advertising campaign to drive people to the page.
02 Drop Shipping
In a drop shipping business, the customer places the order with you. You order the products from the supplier and the supplier ships directly to the customer.
Consequently, you do not hold any stock. And much like affiliate marketing, your running costs are limited to a website and advertising. However, the drawbacks to this business model are low margins and potential cash flow issues.
The cash flow problem is that receipts from your customers may take five days or more to come through a payment gateway into your bank account. Meanwhile, you will need to pay the supplier. So, you will need to fund that five-day or more working capital cycle.
03 Freelancing and Gigging
Freelance gigging sites such as Fiverr, Upwork, and People Per Hour provide a platform for people to market services. The services offered are micro-jobs, such as designing a logo or writing a piece of web content.
When customers place an order, they pay the gig site. When you complete the work, and the customer confirms they are happy with it, the gig site pays you the order value less a commission, usually around 25%.
You can offer almost any type of service on sites like Fiverr. However, competition on the sites is high, so prices are relatively low.
Nevertheless, freelance gigging is a risk-free way to start a service-based business and gain experience. And it is ideal for a part-time sideline that you can turn into a full-time business later.
04 Consulting / Services
The next step from freelance gigging is to set up a stand-alone consultancy or services business. The advantage of this model over gigging is that you can command higher prices, and you do not have to pay a commission to a freelancer website.
However, you will need to pay for advertising instead. You are selling your own time in a consulting or services business, so there is no stock. However, you would likely need to offer customers credit terms.
If you run the business from home, overheads will be minimal. However, a business address would be advantageous in most sectors, even if it is only a virtual office service.
There are many services and consultancy business opportunities ranging from professional services like accountancy to general services, such as dog-walking or house-sitting.
05 Direct Sales / MLM
Direct sales and multi-level marketing (MLM) have a poor reputation. And, yes, some of these so-called business opportunities are oversold, and some are scams. Nevertheless, this type of self-employed business does warrant a mention here.
Suppose you are looking for a low-risk part-time business. In that case, opportunities such as Tupperware, Amway, Herbalife, and Avon might be an option.
On the plus side, direct sales and MLM opportunities don’t usually require you to hold inventory. Start-up costs are limited to a registration fee and the purchase of marketing materials and demonstration products.
However, you should know that results may vary. Some people make an excellent full-time income by direct selling, while many more people sign up with these businesses and earn little or no money.
There is an element of risk in any business venture.
Still, you can keep risk to an acceptable level by minimizing the initial investment, avoiding holding inventory and offering credit, and keeping overheads low.
The business ideas mentioned above may not necessarily be a fast route to achieving all your goals. But they will provide a first-time entrepreneur with valuable experience that could lead to greater things.