If you're running a small business, it can seem like perils are coming at you from every direction. Here are 7 simple things you can do to lower your business risk.
Running a business comes with its own unique set of challenges. From tight profit margins to employee conflict, somedays it may feel like it's coming from all sides. Small businesses are at a higher risk due to competition, lack of processes, and the tides of the economy.
Only two-thirds of small businesses will survive 2 years, half won't make it past five years, and a mere one-third will survive 10.
One of the most important things your business can do is identify business risk and create an effective risk management plan.
Our team has compiled a list of the types of risk your business may encounter and strategies to combat them. Let's get started!
Types of Business Risk
What many business owners fail to realize is that business risk comes in all shapes and sizes. Every industry comes with its own set of challenges and limitations.
We've identified the most common risks that business face and their common causes.
Strategic risk occurs at a very specific time and industry. They're commonly associated with technology, clothing, and retail. Strategic risk is defined by a large consumer shift.
For example, if you had decided to enter the cassette tape industry in the mid-80s, you would not have lasted long as CDs swelled in popularity in 1983.
Combat strategic risks by understanding the market you're entering and conduct an in-depth analysis of where the industry stands, potential risks, and emerging technologies that may affect your companies success.
Compliance risk concerns any legality that may be associated with the business. Understand any bureaucratic rules and regulations that concern your company. For example, have an up-to-date understanding of employee protective regulations for OSHA, the EPA, and the FDA.
Of course, this can wax and wane depending on your business and industry. Know your industry and anticipate compliance that your business will be subjected to. Failing to comply may result in hefty fines and possibly lead to complete business failure.
When business owners think "risk", most minds immediately jump to funds. It's a fair worry, as many businesses find themselves in a financial bind at one time or another.
Ensure that your business has the appropriate funds to operate, pay employees, and have a safe chunk of funds in case of emergency.
Operational risks, in short, are internal failings, such as poor processes, unfit employees, or lack of technology.
It's essential to hire the right people to avoid massive turnover and to have coworkers you can depend on. Small businesses have the unique opportunity to get input as you go. See what processes work, identify areas of opportunity, and build a system that your current team can follow and leads towards future opportunity.
Don't forget about your technology either! Safeguard your technology and be aware of any emerging tech that can ease processes. Consult an IT professional to identify any system risks, potential malfunctions, and ask for recommendations that will improve your day-to-day functions.
Are your social media pages flooded with negativity? Are poor reviews taking over your local search results?
Manage your reputation with hands-on engagement, responses, and actually fix the problem. A tarnished reputation can easily lead to closed doors, especially in our increasingly digital age. One well-timed tweet can lead to a fired employee.
Assign a trusted member of your team to have the responsibility of reputation management, field negative reviews, and publicity, and respond to each grievance with understanding, compassion, and genuine care.
1. Have a Plan
This company has the right idea. Their mission is, "Don't just manage risk. Reduce it."
The first step in effective risk management is to have a plan. Anticipate potential risks, internal and external, and create a plan for potential scenarios.
If a valued employee quits do you know who will take over their duties? Does your business have a plan for natural disasters?
Take action and plan for the unexpected.
2. Insure Your Business
Consult an insurance agent and protect your most valued assets with the right insurance plans.
Choose insurance that can cover the loss of property, income, potential lawsuits, theft, and any other business risk that can affect your company.
Be aware of risks that may affect your specific location, as well. For example, if your area is prone to flooding, consider purchasing additional flood insurance.
3. Keep Accurate Records
This sounds obvious, but you would be surprised how easily important documents are lost, misplaced, or deleted completely.
Have an effective management system that you and your team are well-versed in. Ensure that important documents can be easily found and are secured.
Consider cloud options like Dropbox and Google Drive that can be accessed remotely in case of an emergency.
4. Keep Debts Low (Or Nonexistent)
Keep detailed records of your business expenditures and know how your debt is being dealt with.
Ensure that any employees with access to the company credit cards are accurately reporting their spending, using the card correctly, and investing in worthwhile endeavors.
5. Change Your Insurance When Your Business Changes
Businesses change and, as a result, that means your insurance will too.
Consult with your insurance provider as your business changes, your staff grows, or when new locations open.
6. Hire a Consultant
Just as you're an expert in your industry, there are others that are experts in identifying risk factors in business.
Hire a consultant to take an in-depth look at your business and get a bird's eye view of internal and external risks.
7. Create an Exit Plan
Few business owners want to think extensively about company risks but the success of your company depends on it.
Think of worst case scenarios and have an exit strategy. You may take a hit, but a well-developed plan can save the foundation of your business.
Discover More Ways to Improve Your Small Business
Owning a company will always consist of business risk, but it's also incredibly rewarding to give back to your community, assist customers, and watch your business grow from a small business to a staple in your city.
Looking for more small business advice? Check out our articles for small businesses and discover how to improve your search engine optimization (SEO), increase your search rankings, and much more!