Taking a Risk In Business: What Your Kelowna Accountant May Not Tell You
All the greatest success stories are the ones that show the protagonist against all odds and facing great risk only to overcome adversity and prevail to the heights of the grandest of all dreams (something your Kelowna accountant may often advise against). Despite the prevalence of these inspiring stories, the ones we all seem to remember when we are faced with a big risk are the stories about failure and, gasp, bankruptcy. These are the ones that a good accountant or advisor will warn you against.
Taking risks are scary because you are trekking through the unknown and usually putting a lot on the line. The fear of losing can paralyze you from making wise decisions that will bring you true financial freedom and there are a few things that you can do to avoid the dreaded analysis paralysis!
Figure Out Your Definition of Risk
Before you can determine whether or not a risk is an acceptable one, you have to define the word itself. For example, somebody who has a million dollars in the bank account can take something that I call a flyer. They could take a flyer on a $100,000 venture and, although it is a high risk, they would have to ask themselves if losing that $100,000 would really change their life.
Obviously losing that kind of money would hurt but it’s not going to be devastating to them.
On the flipside, if you take a retired widow who only has $200,000 in the bank from her life savings and invests in the exact same venture, she cannot afford to fail. The risk levels are completely different based on that individual’s situation, despite the opportunity remaining exactly the same. The millionaire walks away with a bad day and the retired widow walks away bankrupt.
Are You Prepared For All Potential Outcomes?
You’ve got to make sure when you’re considering any risk in your business, is it a risk you are prepared to put yourself in, your family in and are prepared with all potential financial outcomes. Make sure you’ve got the reserves and the backup in case it goes sideways. This is where a good Kelowna accountant can serve as a trusted advisor to help you weigh the pros and cons of a decision like this.
Don’t paint a negative picture of your project, I’m not trying to suggest that you should have a pessimistic or negative approach to your investments. I pride myself on being very optimistic when it comes to these situations but I do so with the rose-coloured glasses off.
When you’re reviewing a potential investment and the risk level is high, you’re potential return should reflect that risk and also be high. High risk should always mean high return and if the potential gains aren’t much higher than putting your money in a GIC then you should not even consider the investment.
Are You Ready To Take A Chance?
It all comes down to you in the end. Why are you considering taking this risk in the first place? Is it legitimately a wise investment that you have done your due diligence on or is the desire based on an impulse?
Think hard about what you want out of this investment and what your expectations are coming out of it. Compare your expectations with your goals in life and see how they align to ensure this is the right path for you.
It is crucial that your important decisions are not emotional decisions so consulting with a good Kelowna accountant or trusted advisor is always encouraged to help you weigh the benefits with a qualified, neutral party.
About the Author
Ken Davidson is a Chartered Accountant with BDO Canada LLP, with their Kelowna accounting firm. Ken specializes in helping Kelowna businesses that are in start-up mode, companies in Kelowna that are in their growth phase and are ready to take their revenues to the next level, and professionals to secure their financial future with solid investment advice. Ken is best known for his strategic planning advice that positions him as a trusted advisor above and beyond being a Kelowna accountant that gives typical tax planning advice. To contact Ken for a Strategic Business Review to learn how he may be able to help your Kelowna business, email him at firstname.lastname@example.org.