Almost everything we do has a level of risk attached to it, from learning to ride a bicycle to trying out a new haircut. Similarly, every new business venture is fraught with hazards and risks. Some of these risks you may predict but some might be unexpected. There are some serious hazards that could harm your entire business, leading to expensive and long lasting damage that could be difficult to undo.
The risk with every business is the possibility of a company not meeting their estimated profit numbers within a specific time period. Mainly business risk is influenced by many factors like the volume of sales, input costs, competition, government policies etc.
Types of business risks
By understanding the types of risks that your business might have to encounter, you can identify them quickly and resolve them in time. Given below are some risks commonly associated with business ventures:
Everyone is aware of the fact that a successful business requires a wide-ranging and well thought out business plan. Strategic risks are those that lead to a company’s strategy becoming less efficient, affecting its ability to reach its defined goals and objectives. Strategic risks could arise because of many reasons such as, changes in technology, powerful new rivals entering the market or spikes in the expenses of raw resources.
They generally occur from:
- Surroundings of a business
- Investor relations
Are you complying with all the required laws and policies associated with your business? Everyone is aware of the fact that laws change all the time and therefore, there’s always a risk of not being compliant with new regulations or policies in the future. As your business grows, you need to comply with new rules and policies as well.
Each and every business is associated with a number of financial risks. The majority of risk categories have a financial impact leading to additional costs or lost revenue. But, this risk is associated with the money flowing in and out of the business plus the risk of an unexpected financial loss to the business. Chances of financial risk are high for businesses that trade globally, as additional factors such as, account interest rates and foreign exchange rates etc. come into the picture.
If you were unable to deliver a product to the market within a particular time frame or if your product does not work the way you want it to, your sales could be severely affected. Such types of potential risks are termed as product risks. Product risk will be very low if you are structuring a simple website, as you can launch a product in a day. Product risk will be very high if you are building a multifaceted website as before launching a product many things can go wrong, like running out of capital, technical errors, demand being greater than supply etc.
Regardless of the niche you operate in, your company’s reputation or brand value is everything. You will notice an instant loss of revenue if your reputation is affected. Loss of status and reputation may lead to product failures, negative publicity etc.
How to manage risk in a business?
There are four ways to deal with and manage business risks:
- Accept it
- Transfer it
- Reduce it
- Eliminate it
Consider a scenario where your business is being hampered because of one of the aforementioned risks.
If elimination is not an option because of the high costs involved, you could accept the risk and then decide to transfer it to your insurance provider. You may even reduce the risk by introducing some safety procedures and actions or eliminate it totally by altering the way you produce the product.
Follow your plan
A proper business plan that highlights all the aspects required for your business from advertising to income projections is essential before you start out with your own venture. If you are operating your business without a set plan, you will be privy to a lot of differing views and suggestions to deal with the risks that your business is currently encountering. A well-organised business plan will help you in controlling and managing the risk more efficiently.
Choose the right insurance
Insurance will not diminish your business risks but it’s a great financial tool that will be of assistance if you suffer from severe losses associated with unanticipated risks. This can be critical for your business as there will be some financial return in case of any loss.
In order to protect yourself and deal with some of the risks involved with your business, it’s better to buy liability insurance for your business, as it will protect your personal assets from lawsuits that might arise from product defects, customer loss of revenue etc.
Also, if you have taken out a loan for your business previously, do check for Payment Protection Insurance (PPI). Many cases have come up in the UK, where people were unknowingly sold PPI polices when they took out a loan, mortgage or credit card. So if you notice that you were mis-sold the PPI policy then it’s better to claim for refund now, as a deadline has been enforced for PPI related claims.
Build a trustworthy reputation
Before launching your business, utilise social media tools for advertising. Support potential customers as well as patrons by providing better services and deals that are very difficult to resist.
Your main aim is to make your business stand out from various rivals in the market. By having a well-known brand identity, you can ensure that your business prospers through a stable of reliable clients. Protect your business from situations that can give your business a negative image in front of your clients as well as the public. One negative post about your business can badly damage your business’s reputation.
Plan proper management of finance and be informed about compliance regulations
Can you run your business without money? What will happen to your business if you run out of operating capital? It’s important that you manage the cash flow and expenditures of your business smartly. Until and unless you have a settled stream of income, avoid investing heavily in publicity and promotions. The initial part of any business setup is also its most critical stage so, be cash conscious and try to save as much as you can.
It’s better to depend on short time business loans compared to big loans taken over a longer period of time. Before you set up your new venture, it is important to be aware of rules and policies like legal issues, income tax, copyright etc. that are directly related to your business. If your business is not legally compliant it can land you in hot water later on.
Changes in the marketplace, financial environment, client’s performance etc can affect your business both positively or negatively. All these sorts of potential risks need to be recognised and dealt with in order to sustain the growth of your business.