In order to make sensible decisions about the business as you run and grow it, it's helpful to understand your risk appetite.
Risk appetite depends on:
- Risk tolerance
- Financial goals
The questions below are structured to give you a sense on where you stand on these things. There's no right or wrong answers, these are just to help you identify your own profile, and make better decisions as a result.
(Answers to questions are: Strongly Agree, Agree, Neither, Disagree, Strongly Disagree.)
- My friends would say that I am cautious.
- I am highly knowledgeable about investing directly into privately held small businesses.
- I have invested significantly in other small businesses previously.
- If I lost my current main income, I might need to cash-in my investment from this business at short notice.
- Maximising long term investments is my goal, and I would be willing to accept dramatic, short term drops in value to achieve this.
- I would rather the business prioritised protecting the value of my investment from downsides, over taking risks that might result in higher growth.
- My friends would say that I am a risk taker.
- If I lose the money invested in, or the income/dividends expected from, this business it would be very worrying and might cause me financial problems.
- I would prefer the business to take chances to grow in value significantly even if that might risk a loss in the value of my investment if the plans didn’t work out.
- I would be unhappy if the business needed extra investment from its current shareholders in order to protect my investment.
- I would not wish to, or be able to, invest further in this business if it sought further investment from existing shareholders, even if this might lead to bigger returns in the long term.
- I would be unhappy if the business needed to raise further investment from external investors that would dilute my ownership share, even if this might lead to bigger returns in the long term.
- I earn my main income from this business as well as owning it.
- I expect my investment in this business to provide dividend income (note: exclude dividends in place of salary from this. This is just dividends on investment).
- I’m more concerned with growing the value of the business than taking dividends.
- I fear the idea of being personally short of money.
- I have other financial resources outside this business (assets, savings, investments).
- I would like the business to be ambitious and adventurous, so I can enjoy the ride, even if this means I may lose the money I've put into it and my income.
- I know that I can rely on financial support from others (eg partner, family) if I hit hard times personally.
- I have major personal financial goals (educating children, buying a house, retiring) that I have earmarked the returns from this investment for.
- If this business failed, or I had to leave (eg after a sale), I could easily find another job I would enjoy and get good financial rewards from within 3-6 months.