Risk. It’s a word you hear a lot in business. Of course, running a business comes with plenty of risks. Which makes it hard for a lot of business owners to stay afloat, and prevents a lot of potential business owners from starting up. Fortunately, though, most risks can be avoided with clever planning and identification.
When you’re trying to plan for risk within your company, you should perform a risk assessment. This will determine the risks that your company faces, and will give you a solid place to start planning to prevent risks. This can be hard, though. So, this post will go through some of the risk areas you need to be aware of, and how to avoid them. For bigger companies, it’s usually best to get outside help. Enterprise risk management companies can perform risk assessments for you and give you data back with a plan. Obviously, having professional help would benefit even the smallest of companies.
Obviously, you will already have a solid business plan in place; that spans over the next few years. Your plan details the all of the steps your company is going to make, to become a market leader. But, what if something changes suddenly? Particularly in the world of tech, it’s easy for a business model to fail because popular products change and progress. This is strategic risk.
Sometimes, this risk is unavoidable. But, you can still do something about it. You have to be willing to move away from your original plan. If you’re able to adapt your business quickly enough, you could keep your position in the market. Whereas, if you don’t change a thing, you’ll be left in the dust. A great example of strategic risk damaging a company can be found in Kodak. In 1975, a Kodak engineer invented a digital camera. Unfortunately, because it would be a threat to their film camera market, Kodak decided not to pursue the product. Obviously, digital cameras became the standard. And so, Kodak became bankrupt. If they’d simply adapted to a modern market, they could still be at the top of the foodchain today.
To notice this sort of risk, you have to be observant. Monitor your competitors, as well as the products available. When another company releases something that looks like it could be very popular, it’s worth trying to jump on the bandwagon. Do market research for any product before trying to sell it. Sometimes, even great products don’t leave the shelves.
Your company has to be compliant with the laws of the land. But, sometimes laws can change, leaving businesses to fall short. As a business owner, it’s your responsibility to make sure that your business is always operating legally. When a law changes you need to change with it; if you don’t, you could find yourself in a tricky situation. This is compliance risk.
The law is different in every country. And, a lot of the time, if your business ships overseas, you have to follow the rules of those countries as well. This makes it extra important that you work hard to research and know the law. This has to be a constant process. You have to regularly check to make sure that you’re still compliant. As a business, you can’t claim ignorance in court; you’re always responsible, even if you weren’t aware that the law was being broken. Thankfully, you can use a professional to help you manage this risk. They will be able to help you check your current practice, and then monitor it for you throughout the future. Their advice will be from a place of experience and knowledge, so you can always trust that your company is going in the right direction. Obviously, you’re still responsible if something goes wrong, even with the help of a professional. So, you’ve still got some research to do, even if you hire someone. Most companies will give you some sort of compensation if their compliance management solution fails for you.
Everyday your company will rely on internal systems and services to run. Sometimes, though, things go wrong. Whether it’s a power cut stopping your servers from working, or a staff member submitting a payment for much more than intended. These problems are operational risks to your business. They are risks that occur as a result of internal operations, whether it be the people or processes your business uses.
Most operational risks will require an audit to get to the bottom of. You need to scour your business, from top to bottom, to find the risk areas. Say you have a water cooler next to your server power supply. This would be considered a risk because the water could damage the hardware. To avoid the risk, you’d simply move the water cooler. This works for internal processes as well. If your staff have to make payments by cheque, it can be very easy to pay the wrong amount. To get around this risk, you could bring in a new payment system. One with some sort of verification, like an electronic system or simple double check from another staff member. It’s important that you identify these risks early on, as they can become other types of risk, as well. Just like the other types of risk, you can have a professional audit to help you out with your operations.
Of course, most of these risks all involve the possibility of losing money. But, a financial risk is a risk regarding the actual income and outgoings of your business. Say you’re a construction company that generally relies on having one or two large clients at a time. If one of your current customers fails to make a payment, you could be in trouble. The risk on your side comes from allowing the customer to make the payment after the work. But, obviously, this is unavoidable in some cases.
One of the best ways to avoid financial risk is to always have a contract with those you work with. The contract should specify exact numbers for things like deadlines, payments, and interest. This way, if someone fails you, you can still take legal action. This risk covers any sort of change to your company’s income or outgoing, so it’s very broad. It’s worth having a professional have a look at your company to evaluate the financial risk you’re taking on.
One day, you post a controversial status on social media, for your company. A lot of people see the post and a lot of people really don’t like it. As a result, these people are much less likely to buy from you in the future. Plus, they could even start to spread word of your bad reputation. This is a reputational risk, one that needs to be avoided.
In business, your reputation is everything. If you have a widely recognized bad reputation, you’ll struggle to draw in customers and make sales. A lot of your reputation is built up by how you treat your customers. This extends to sales, customer support, social networking, advertising, and accurate marketing. Lying to customers or forgetting to ship orders is a bad idea. But, so is taking too long to reply to a customer. This sort of risk can be easily managed in-house. You just have to make sure that you’re polite, don’t lie to people, and treat your customers like royalty.
All of these risks can be handled with a small amount of clever planning. It’s worth investing in your risk management early on, to avoid large problems in the future. But, remember, there’s no point if you’re not going to work at making a difference. Good luck, and enjoy living risk-free!