How to identify and manage business risks
Going into business is risky. It takes time, money and determination. Even though the market is stable, you have done all your research and taken the necessary precautions; your business can still be affected by different types of risks.
The most common types of business risks are financial, technological, operational, strategic, economic and market risks. Some of these risks have the potential to destroy your business, while others can lead to serious damage that requires a lot of resources to repair.
For example, disruptive technologies can mean that your business must invest in new systems and processes. If it’s not something that you had anticipated and adequately planned, it can drastically affect your bottom line.
While the risk cannot be entirely avoided and prevented, smart business owners and managers can identify potential risks and prepare actions to minimize their impact. In fact, identifying risks is a key part of business planning.
With the right tools, procedures, knowledge, and knowledge, any business owner or manager can learn to identify and manage business risks. Here are some tips to help you:
Write a business plan
Conducting proper research and writing a business plan is an important step in evaluating, evaluating and planning how to mitigate the various risks associated with a business. While many risks seem unpredictable, they become quite obvious if you take the time to write a business plan that includes a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis.
When writing your business plan, consider the current and future state of the market. Make sure you articulate the risks your business is likely to face. This document is not just for you. Investors will also want to know the potential risks before giving you their money. Understanding the potential risks also helps them structure an appropriate financing program that works for all parties.
Are you worried that investors will be scared if you open up to potential risks? Many new business owners mistakenly believe that talking about business risks with potential investors will only highlight weaknesses in their business. This is a valid concern that you can resolve by focusing on your risk management plan.
Create a risk management plan
As part of or in addition to a business plan, you should also have a risk management plan for your business. In addition to listing the risks that could affect your business, a risk management plan also explores the procedures to be followed if risks arise. In your risk management plan, you should estimate the impact that each risk could have on your business in order to find ways to minimize it.
Having a good risk management plan is music for investors. It shows them that you’ve done your research and have a realistic approach to mitigating any risks that may arise. This goes a long way in allaying their fears and allowing them to trust you with their money.
For example, your risk management plan might include obtaining relevant insurance policies to protect your business. If your business is located in an area where it could be looted by rioters, for example, you can take out a policy that specifically covers damage and loss due to political unrest.
Keep in mind that just like a business plan, a risk management plan should be updated from time to time. In some dynamic industries where trends are still disrupting the market, you may need to change your risk management plan every year.
Instinctively, the human mind has a fight or flight response to risk. How we react to danger, uncertainty or threat is firmly anchored in our psychology. While this response protects us, it can also be detrimental if it causes you to ignore potential business risks or affects your productivity during times of stress.
Train yourself and your employees on how to identify and manage risk. For example, ask them to write a detailed analysis of the situation and possible solutions. It trains them to think critically and find solutions instead of just waiting for you or a manager to tell them what to do.
Encourage yourself and your employees to view risk as an opportunity for learning and growth. No matter how bleak the situation may seem, try to maintain a positive frame of mind. Every great business you admire has had to overcome several major risks and has done so by being proactive and making informed decisions.
Seek expert help
As a business owner, there are many types of professionals who can help you identify and mitigate business risks.
For example, an insurance broker will be able to identify business risks that you could mitigate with various coverages.
They can assess your claims history to identify poorly managed risks and advise you accordingly. An accountant or financial advisor will help you identify and manage financial risks.
If your business is large enough, you can hire a risk manager who is trained to react to risks and make favorable decisions under pressure. Risk management officers identify and assess threats to an organization and put plans in place to mitigate losses.