How to Manage Risk
Regardless of what type of company you have, and what sector it’s operating in, there will always be risks in business – both to your company and personal liability. The best way to deal with these risks is to set up a risk management strategy which will help reduce those risks, avoid them altogether or transfer them to others.
Risk management is in essence, all about reducing risks in the most cost-effective way possible and in a way that will cause as little damage to your business as possible.
It’s a good idea from the outset to set up a risk analysis for your business in which you outline the severity and the benefit of each risk. That way you can look at avoiding the more serious risks if the benefits just aren’t worth it. In the case of severe risks with benefits would it be possible to transfer those risks to, for example, suppliers?
Another way of transferring risk is via taking out insurance so that if anything does go wrong, such as a customer is injured or maybe a fire breaks out in your production plant, then it’s the insurance company that will be left forking out for the payments. In terms of personal liability, transferring from a sole proprietor to a limited company will minimise the financial risks against yourself if anything goes wrong (such as being left with large debts). In this way your own personal savings would be protected.
Smaller risks would cover issues such as the printer running out of paper when you needed to print out a document prior a crucial client meeting. The way to mitigate this would, of course, be to ensure you always had spare paper in supply by ordering it on a regular basis. Financial risks can be reduced by setting up an accounting system which, amongst other benefits, will highlight bad creditors, minimise outstanding balances and ensure company loans are manageable. Another big risk – and possibly the least unpredictable – is with staff. Good recruitment procedures should minimise risks, alongside a properly-implemented staff feedback scheme (through management channels or otherwise).
It’s important to remember with managing risk that this is an ongoing process. New risks will develop alongside your business growth. Because of this it’s crucial to set up a risk monitoring programme into your strategy where you revisit earlier identified risks to ensure the procedures you put in place are being adhered to, as well as include and evaluate any new risks which may have arisen.
It’s also worth remembering that often it’s not the individual risk that topples a company but a combination of risks at once so that ultimately the business gets swamped. In other words your business might be able to cope with a couple of bad creditors but that, in addition to an increase in supplier prices and a competitor selling cheaper than yourself, may just be too much for your company to handle simultaneously.
In effect then, risks should always be taken seriously and having a strong plan to deal with them is essential for every entrepreneur today.
About the Author:
Raj Dhonota first came to the public eye in 2005 during the first series of The Apprentice. Since his time on the reality programme he has gone on to become a successful serial entrepreneur and investor in start-up businesses covering a range of industries from eCommerce, property, language translation, network marketing, recruitment, fashion and consumer goods. For more information, please visit: www.rajdhonota.com