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Small businesses are prone to a lot of risks. From financial threats and market competition to unexpected issues like hazardous equipment, medical expenses, legal expenses, and security issues, a small business can be affected by any (or several) of these problems at any time. And as a small business owner, you must be properly equipped with risk management strategies to ensure minimal to no setbacks.
Before achieving this, you need to first make assessments to your business model.
A small business analysis is essential in giving you a fuller picture of all the possible bottlenecks your business can face in the future. While risk assessment is not 100 percent accurate when assessing the level of risk, it is still an important step to initiate.
For risk assessment, the very first steps are to:
1. Identify the Risks in Your Business Model: Identify what issues could pose a risk to your business model. And, thereafter, consider the damages those issues could have on your organization. Keep in mind that, depending on your business type, location, and size, risks may vary.
2. Document: Once you’ve documented your list of risks, begin the process of measuring the effects of each and determining how hard they could hit your business. Tip: Set up a scoring system, from mild to severe, to segment your list.
3. Monitor: Identify and appoint employees who will keep an eye on monitoring your risks. But before that monitoring takes place, you should define how risks should be reported and handled. When you have procedures pre-defined for risk management, issues can be solved very smoothly.
4. Review: Risk assessment is not a one-time thing; it requires regular reviews. Review all your risk assessment processes to see if all your steps are still relevant for potential upcoming risks. Also, analyze new risks that might not have been relevant in the previous assessment.
Managing the Risks — Strategize to Implement
Managing risks can be cost-effective, but this involves avoidance, reduction, transformation, and acceptance.
Here are some areas that require risk management:
- Customer Sector
- Producers and Suppliers
- Staff Department
- Information Technology Sector
- Market Opportunities
If your business relies on a small number of customers, profit, and cash flow, then you should focus on locking in your major customers for the long-term, spreading out the risk by fragmenting into smaller customer groups, seeking new profitable customers, and even finding lower-cost ways of providing service.
If the risks concern suppliers, production, profits, and cash flow, not dealing with possible supplier issues might lead to business failure. So, make sure to lock in major suppliers through long-term service contracts and seek alternative suppliers capable of supplying similar items.
If the risks are due to a staffing problem, this is often because the employees see the business as a short-term employment option. For the sake of the long term, implement selection procedures that increase the probability of retaining employees. Find the right candidate, put in place a confidentiality agreement for trade policies, and finalize a robust performance development system for setting the criteria. Also, provide ongoing training for creating performance standards, allocate other people to fulfill key tasks, and review each employee’s notice period, allocating them according to your investments in them.
If the risks are related to information technology, this could be either system failures or security issues. So, protect your laptops, desktop computers, and hardware from internal and external threats. Keep data safe by installing antivirus and cloud services, and if you’re an agency that deals with different IPs, it is important that you install safe and secure VPNs. Next, secure the line of business applications, ensure uninterrupted power supply, and conduct appropriate IT training.
If the risks are financial, this might also include falling into debt. So, manage cash flow on a daily, weekly, or monthly basis. Forecast cash flow to identify any occasions when it may not be stable. Establish a committed line of credit from a financial institution. Maintain a strong relationship with financial institutions to ensure that they understand the business in times of crunch, and monitor market conditions to analyze seasonal fluctuations.
If risks are due to loose market opportunities, this is when a business is secure from market crunch but might face customer visibility crunch. So, research and analyze consumer trends and tastes in order to respond to change. Test the marketplace to see what products and services are in demand, promote products or services to sell better, and promote more profitable stocks or services.
Some Other Risks That Businesses Can Possess
Internal Controls: It is essential to track and control your business internally to manage your assets. The control depends on the business goods and the funds, industry type, and potential challenges.
Sales: Define the procedure to deliver goods, the purchase history of the customers, and the process for handling cash flow, checks, and credit sales.
Purchasing: Keep an eye on the procedure that ensures the purchases are in line, the suppliers’ details are in check, and the order history and deliverables information are recorded.
Accounts Payable: Create a system to ensure that payments are not duplicated or made to an unidentified supplier. Create procedures to make sure that the payments are carried out on agreed-upon terms.
Payments: Check that invoices are approved by the appropriate authority. Create a list of who is authorized to make payments and procedures that define the duties of the bank and bank reconciliation separately.
Personal Accidents and Illness: This mitigation is vital for self-employed business operators who are not covered by workers’ compensation insurance.
One of the main reasons that businesses fail is that they forget to assess their models continuously, or they do not review their risk management strategies to ensure they remain up to date. Along with risk assessment and management, the right insurance policies can save a business from a lot of general liabilities.
Ensure you take all the assessment steps and create risk management policies according to potential business holdups and bottlenecks. And, with it, insure certain aspects of your business, such as property, injury, medical expenses, legal expenses, and more for greater security.