All business owners – large and small – will face various risks during the running of your business. Risks in business are unavoidable. They exist. Fortunately, many problems can be avoided by first recognising the potential risks and then doing something to correct them or counteract them before they can become an issue.
In this article, we’ll take a look in general at some common risk areas that most businesses will need to address. In order to perform risk management, you must first be aware of what risks to look out for. Only then can you put systems in place to prevent potential problems from becoming a reality.
Investing in ERM software, software dedicated to helping business owners with risk management, will be invaluable in implementing a successful risk management plan and ongoing monitoring of business operations.
Strategic Risks
Strategic risks are common in just about any business. Certain strategies you employ could see the business booming or, alternatively, bring things undone. Strategic risks are not only limited to the decisions you make as a business owner, either. A classic example of strategic risk is a new competitor opening up a shop near your location. While you may not be able to foresee this happening, if you’re already aware of the possibility, you can have plans in place to stay ahead of your competitor if and when this does occur.
Changes in your industry could also be considered strategic risks, as they can impact upon any strategies you already have in place or have in the pipeline.
Financial Risks
Financial risk is all about effectively covering the costs of your business without getting into hot water with debtors or the authorities. Your business needs to be able to manage its debts and have sound systems in place for repayment of debts and accounts.
Market volatility is one risk to be aware of, as it can adversely affect your bottom line if the market drops, which could make it difficult to pay your debts on time.
Extending credit to suppliers and customers is also a risk to take into consideration, as tardy payment on their behalf will impact your business cash flow.
Borrowing large sums of money to expand the business also needs to be thought out carefully, as there are many potential financial risks involved with this strategy.
The Risk Of Not Being Compliant
Every industry in the UK is governed by certain rules and regulations. Find yourself in violation of these laws and you could face a hefty fine, or worse, have your business shut down.
Step one in avoiding issues with compliance is to first understand the rules and regulations that govern your industry. Not only do managers and business owners need to be aware of this, but also every single employee.
Compile a report that lays out what’s required to remain compliant and distribute it to every member of staff.
Operational Risks
Operational risks are general risks associated with your business operations and processes. These could include things like equipment failure that stifles production, a lack of adequate equipment to speed up processing and production times, a disorganised work environment, inefficient systems and human error.
Every single business, no matter what the industry, will definitely face certain operational risks that result in either loss of income, slow production or possibly even physical injury.
Criminal activity, such as customers or staff stealing from the business, also comes under the operational risk umbrella. Your company’s IT system is another important consideration when it comes to operational risks, as system downtime or cyberattacks will greatly affect business operations.
Risk To Your Business Reputation
Businesses survive based on their reputation for the most part. A company with a good reputation will develop trust with customers and suppliers alike. Looking after the health of your business reputation should be a very high priority.
In fact, every facet of your business can affect your reputation, which is why having a risk management plan is so important. A plan will help you and your staff identify risks, prioritise risks and put systems in place to minimise risks. Everything you do in your risk management plan will help to protect the reputation of your business.
The Takeaway
Effective risks management starts with recognising what risks are lurking out there, then putting a plan together to counteract and mitigate those risks.
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