Women In Business

9 Strategies to minimise risk in business

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From large corporations to small sole-proprietorship businesses, every single one of them carries with it many kinds of risks. Risks such as consumer market transitions, legal issues and personnel safety.  For every potential risk, a system of controls needs to be implemented to reduce the amount of risk.In small business, how capable are you of supporting outcomes of potential crisis so that you are able to continue your business operations after an event?This is the reason why small businesses in particular must work towards reducing the risks to ensure that they obtain continued success and make use of every new opportunity that comes their way.

All businesses need to assess the risks within their firms and in their industries to come up with the best ways to reduce the chances of risk.  Small businesses face a large number of risks which are indeed preventable.

In this article, we’ll take a look at some of the ways in which business owners can minimise their risks:

1. Obtain insurance.

Although insurance doesn’t completely reduce risk, but it helps the small businesses by supporting them from taking the entire financial burden that is associated with either defective inventory or an employee that has been injured, and thus reduces the risk of the business folding.  We need to seriously consider insuring our inventory, the company property, business equipment and vehicles and also maintain a workers compensation policy.  What about insuring the business owner’s life, or disability and sickness insurance?  There is digital insurance (in case you are hacked), there is management insurance (in case one of your staff makes a mistake), there is professional indemnity insurance.  Talk to your insurance broker to ascertain what you need or if you’re on a budget what is most critical?

2. Expand the offerings of the business.

Whether the business is involved in deals with services or tangible goods, the more the number of offerings provided, the lesser the amount of risk because of the availability of backup sources of funding. If a business depends on just one single product, there is a higher probability that it may shutdown once the public loses interest in their product or alternatively a large competitor takes over the marketplace or there is government or legislative change which hugely affects that business. You know the expression – don’t have ‘all your eggs in one basket’.

3. Stick to short-term commitments.

Until and unless a small business is a strongly established, long-term commitment which includes mortgages or car lease payments needs to be avoided. Private automobile usage can help to reduce the business costs and also the initial risks because the upfront investment of cash is not required.   Be realistic, if the business doesn’t take off as expected, are you locked into long-term commitments you cannot afford?

4. Practice safety at all times.

Ensure that you take all safety measures when it comes to your employees. Safety precautions are also important for your inventory protections such as installing security cameras, burglar alarms, sprinkler systems and smoke detectors. This needs to be taken care of mainly because small businesses face the biggest risks when it comes to employee injuries and major loss of inventory based on preventable disasters.

5. Review the existing system of the internal controls.

Internal controls provide regular checks and balances for every single aspect of the company. Internal controls can be as simple as having a checklist of precautions before one enters the work area. This is especially with regards to safety issues for the employees. With regards to finances, it could be, for instance, placing different employees in charge of factors such as approving payments or signing cheques, or authoring supplier contracts.  Small businesses face the biggest risks when it comes to theft and fraud; due to often lax or no systems or accountability in respect of money. Limit the number of users who can use the internet. In this way, you can reduce the operational risk of having way too many employees conducting personal business during work hours.   Don’t underestimate the value of staff training when it comes to risk reduction.

6. Create a management risk plan.

Having sufficient insurance is not enough to secure your business. Proactive steps need to be taken to cross-train in order to avoid risk. For instance, you can have two people working on the same job. Thus, in any case, if one of the employees leaves without notice, the other employee can always take over and look after his or her job.  Thus, the job wouldn’t suffer or worse, clients leave due to lack of service.   In small business this is hard as often only one person fulfils many roles.   If you cannot handle having double coverage, you can have an extra weekly staff meet up to keep the employees up-to-date on what is happening and ensure documented processes or systems are kept up to date.

7. Work with an internal control consultant.

This usually refers to a professional outside your business that will review your systems and investigate the weaknesses, if any, with your company’s processes.   An outsider, with a fresh set of eyes, will be able to give the right judgement when it comes to viewing the operations of the business and will also provide unbiased opinions that will help the higher officials to look after and identify the areas of improvementmore effectively.  I often perform this role as part of my duties as a business coach.   I encourage all my clients to work with me to perform a SWOT analysis which focuses heavily on the weaknesses and threats, with strategies to address and combat them as much as possible.

8. Finances

One of the biggest issues that most small business owners face is financial risk, not just in day to day operations but also in growth.   Many business owners feel that marketing and sales is the most important aspect of business (and I’m not diminishing its importance), however, the money side of things is equally, if not moreso, important.  You can minimise risk through strong and well worded (legally-reviewed) client contracts or Terms & Conditions and Staff Agreements.  Having cash-flow forecasts and budgets in place reduces risk.   Knowing your margins and breakevens and tracking budget versus actual reduces risk.  Having short-term trading terms (7 days versus 30 days) reduces risk.  Great collection processes reduce risk.  I could talk all day on the financial aspects of a business which when done well will reduce risks within that business.

9. Planning

Having a solid business plan and marketing plan also reduces risk.  If you know what you’re doing, have a strategy and plan (not just a dream where you wander aimlessly), this will give you a better chance of success.   Having expert advice and a documented action blueprint has been proven time and time again (statistically) to give a business a better chance of success and reduce the risk of failure.

It may sound like running a small business may be daunting because of the added risks that come with it.  We often lack the resources and knowledge of our big business counterparts, but that does not mean we should ignore risk.  Faced and addressed, small business risk can be less intimidating.  If you are concerned about risks in your business, I’d be happy to talk with you.  I offer complimentary business analysis reviews – simply contact me to find out more or have an analysis completed.

About Donna Stone

Donna Stone is a business coach with three decades of experience. She grew her own business from a garage to be a multi-award winning operation that spanned five locations nationally. Donna works with business owners and other business coaches, consultants and trainers to help them build their own success. Her Coach the Coach ™ program has proved exceedingly popular. Donna is a prolific writer with hundreds of articles written and six books published. Visit www.donna-stone.com.au

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