Being a business leader means being comfortable with a certain amount of risk. Unfortunately, businesses can be exposed to too much risk. Luckily, there are measures that can be employed that will help you to minimize risk without stifling entrepreneurship.
1. Create a Risk Management Plan.
Developing a strategic plan is a must, but if it doesn’t address potential risks, and how your business will handle them, you could be exposing it to peril. Risk management plans should be customized and could include processes for preventing accidents, succession plans for key employees and even disaster preparedness activities.
Determine the risks that your business night face, and what the cost would be if they occurred, versus the cost required to prepare for them. After determining potential risks, create “if-then” scenarios that clearly outline your expectations. The plan should be comprehensive, without going overboard. After all, you would not want to waste resources planning for events that are highly unlikely to take place.
2. Insure your Business for Specific Risks.
Investing in bare-bones insurance will not provide your business with protection it needs. Chances are, your business faces specific risks that are unique to your industry, location, and customer base. General liability insurance doesn’t always cover potential hazards that could cripple your business. Even businesses that purchase compulsory workers compensation and third party personal injury policies might not have the coverage they need.
Consider all aspects of your business and the risk factors associated with each. If you operate expensive equipment, what would happen if it were damaged? Could you recover if a fire wiped out your product inventory? Is your business prepared for potential litigation?
3. Develop Financial Systems
When the right financial systems are in place, employees have immediate access to the data needed to make appropriate decisions in times of crisis. Financial systems should include measures that prevent overspending and authorize only specific employees to take financial action.
Relying on a financial system that does not incorporate regular reporting and checks and balances opens your business up for costly accounting mistakes and even fraud. An appropriate financial system will allow leaders to understand cash flow and forecast upcoming expenses so that overspending does not occur.
4. Diversify
Without access to cash, your business could end up in serious financial distress in the case of a crisis. Setting up a reserve account will provide a cash cushion, but it shouldn’t be the only emergency funding your business should have access too. Businesses that rely too heavily on debt put themselves at risk, but not having access to credit can also pose a risk.
The availability of a good mix of cash, credit or borrowing power and inventory will minimize financial risk and allow your business to keep its doors open, should the unexpected take place.
5. Watch Trends
To minimize risk, look out for trends within and outside of your business. Monitoring the financial progress of your business and identifying specific trends will help you to anticipate problems and work proactively to prevent them.
Yes, you should strive to be a market leader, but it’s also important to keep an eye on what others in your industry are doing. Discovering trends that have led to the failure of other businesses can provide you with the knowledge that you need to keep your business safe.
No business leader, no matter how talented, can predict every potential business risk. The good news is, many risky situations can be identified and planned for. By sticking to a plan and learning from the mistakes and successes of others, you can minimize your business risk.