Starting a Company: Navigating the Risks 

a person holding a light bulb

Starting a Company: Navigating the Risks 

by | Dec 2, 2024

Starting a new company is an exciting time for many, however, the responsibility can make it a high-pressure and daunting experience. New companies may face greater risks or experience more difficulty in tackling these risks due to a lack of experience. Below, we have detailed potential risks new directors may face, and how to combat these. 

Fraud Risks 

Fraudsters will take their chance with all companies, however, newly formed companies with inexperienced directors, can be more susceptible to scams. 

The most common scams will encourage you to part with your personal information or money and will mimic genuine letters to trick you into thinking that you must comply with any requests. Fraudsters often send letters appearing to be Companies House or even the Intellectual Property Office, encouraging you to believe that they are working with the government organisations. 

Example: If you submit a trademark registration application, you may receive a letter requesting payment to be added to a network of trademarks. However, in the small print, it confirms that it is not in connection with the Intellectual Property Office (IPO) and paying this fee will not help with your application. The IPO has compiled a list of organisations who send misleading or unsolicited correspondence and example scam invoices here 

You can read about more scams related to Companies House or HMRC here. 

If you have any doubt about the authenticity of a letter, contact the government organisation they appear to be connected to using the contact information from their website and verify the information. Avoid using contact information or following any links or QR codes within the letter before confirming its legitimacy. 

Market Risks 

Market research is essential to starting a company and its ongoing success. A risk to a new company is underestimating the current supply in your chosen market or overestimating the demand. In such a situation you may be unable to capture a significant portion of the market, ultimately leading to the company’s failure and subsequent closure unless the market significantly changes, or the company adapts to target a different market.  

Planning will not completely eradicate any risks considering the changing nature of markets due to external factors, including the economy, however, it will allow you to prepare for multiple eventualities. For a chance at success, you will need realistic expectations and be willing to adapt your business plan at any given point. You should also understand that success does not happen overnight, it is a gradual process that requires hard work and consistent efforts. 

Financial Risks 

Starting a company can require significant financial investment which may not be available to all and needs to be carefully managed. As a new business, you may have unexpected costs, increased costs due to the market and cash flow issues. These issues can ruin a company before it has the chance to succeed.   

To mitigate financial risks, you should create a realistic plan, budget and track expenditure and income against your forecasts. Many organisations offer free templates and advice to support you, alternatively you may wish to hire an accountant for extra reassurance. 

Technological Risks 

We live in world where technology is in a constant state of evolution, which can provide opportunities for companies but can also increase the risk posed to them. Many rely on technology for online shops to reach a wider consumer base and manufacturing, however cybersecurity threats, additional legal requirements including GDPR, and software failures can make this difficult.  

If you are not very tech savvy, you should seek expert advice and suggest outsourcing your IT requirements to ensure help is on hand should there be any failures or security breaches. It is also advisable to seek legal advice for any legislative updates.   

HR Risks 

Burnout 

Running a company can be very demanding having to juggle the startup costs, suppliers, and statutory requirements. The pressure to get up and running quickly and to succeed can often lead to directors or staff suffering from burnout. Burnout can cover a range of symptoms such as frustration and irritability, unexplained fatigue, insomnia or lack of pride in your work. This can mean that you struggle to stay motivated or focused on your job. 

It is important to treat burnout to avoid it worsening. To do this you should try and identify the cause and establish what changes can be made to ease the symptoms. E.g., reducing your working hours, hiring additional support, focusing on what you enjoy and getting plenty of sleep. 

There are a wide range of online tools and tips available to provide you or those around you with support in managing burnout. You can also reach out to your local GP for additional support and resources. 

Recruitment  

The recruitment market can be challenging with individuals often seeking a better work-life balance and additional employment benefits. You may face difficulties recruiting for a new company before you have established a company culture, benefits and a training process. 

Do not rush to recruit additional staff until you have assessed the company’s position and are confident that you have the demand to retain staff. When you are ready to recruit additional staff, be aware of what you are offering and the skills you require to avoid a high turnover rate and skills or knowledge gap. 

In summary, this is not an exhaustive list of risks but provides an insight into the primary ones faced by newly incorporated companies, and how you may tackle these. For information on more, your business plan and research should investigate more risks to be aware of and any networks you establish will be able to advise you on risks they have personally faced. 

Our latest news