Risk management for Small Businesses
Risk is a necessary part of growth, although risk management is often overlooked by small businesses. Strategic risk management is just as critical for a start-up, small or growing business as it is for a large, established one.
When you are planning to get your new business off the ground, it is important to understand that every business venture, regardless of economic climate, market conditions, products, personnel, and capitalization has risks involved. Once you have identified and assess those risks, you can begin taking steps to reduce them using some risk management techniques.
Common Risks for Small Businesses
Businesses face all kinds of risks, some of which can cause serious loss of profits or even bankruptcy. Here are the most common types of risks that a small business is much likely to face.
This has to do with how your business handles money. That is, which customers do you extend credit to and for how long? What is your debt load? Do most of your income come from one or two clients who might not be able to pay?
Financial risks also consider interest rates and if you do international business, foreign exchange rates.
This is as a result of internal failures. That is, your business’s internal processes, people or systems fail unexpectedly. Operational risks can also result from unforeseen external events such as transportation systems breaking down, or a supplier failing to deliver goods.
No matter which industry you’re in, your reputation is everything. If your reputation as a business is damaged, you’ll see an immediate loss of revenue, as customers become wary of doing business with you. But there are other effects, too. Your employees may get demoralized and even decide to leave. You may find it hard to hire good replacements, as potential candidates have heard about your bad reputation and don’t want to join your firm.
Risks associated with compliance are those subject to the legislative regulations, or those associated with best practices for investment purposes. These can include employee protection regulations or environmental concerns or even state and local agencies.