Managing your business risk is something you need to know no matter what kind of business you run.
Naturally, there will always be some inherent risk involved when running your business. There’s no way to completely eliminate the risk. But by understanding and managing it, you can minimise its impact on your bottom line.
In this blog, I look at the following:
- Understanding what risk is,
- Looking at risk categories,
- How you can identify risk,
- Ways to manage your risk.
Watch the video to find out more about managing your business risk, or simply read on.
What is business risk?
A business risk is any situation that is sure to make a company not reach its goals. For example, it may be something that will have an effect on the relationship or communication with your customers. Consequently, you’d lose sales, and make the desired profit.
Another example could be some sort of natural disaster. This may also affect communication with clients, or distribution of products (if you’re a product-based business).
It could also be loss of suppliers. This will then result in you not being able to deliver on time, or deliver as big a quantity as you had planned for that particular period of the year.
All in all, business risk is an unexpected situation that prevents your company from fully realising its goal.
Types of business risk
- Strategic risk. For example, things happening in your marketplace, such as customer behaviour change. This will lead to a different outcome in terms of sales.
- Operational risk. This involves things like staff issues i.e. loss of staff, or changes in staff demeanour or productivity. It could also be suppliers (like mentioned above when we were defining business risk). Any problems with them, and you have a major setback.
- Compliance risk. For instance, changes in laws and regulations that will impact the way you operate, or perhaps change the amounts you pay as tax.
- Financial risk. This will cover things like cash flow and profitability.
How to identify risk
Without a doubt, the best way to identify business risks is to have good communication with your team. Talk to your team, and understands where possible difficulties might arise.
On top of that, keep an eye on the topical issues in your industry and stay up-to-date with them.
How to manage your business risk
- Avoidance – Avoid participating in activities you perceive as risky.
- Transference – When outsourcing, you transfer part of the risk to the contractors.
- Insurance – It only covers (part of) the risk you’ve taken, but doesn’t make it go away.
If you want more information or if you have any questions, please be sure to subscribe to my channel so you don’t miss an episode. And until next time, remember that you are in control of your finances and your future.
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