WHAT IS BUSINESS RISK?
All business operators need to identify and minimise risk.
The primary tool for managing risk is to have “contingency plans” in place. In effect, know how you are going to react to something before it happens. The secondary tools for managing risk are; networking and monitoring
- Networking is connecting with anything in the world that will inform you about impacts upon your business
- Monitoring is connecting with everything that is happening in your business, so you know and can respond to anything as soon as it reveals itself.
As with anything in life, there are often nothing is gained without accepting some level of risk (i.e. no pain, no gain). Every action you take in business will probably have both advantages and disadvantages (pros and cons).
It is important that you understand what can be controlled and what cannot be controlled.
You CAN control –
- That you have enough insurance to cover you against any risks
- That you ensure there is sufficient money flow in your business
- That you keep good accounts.
- That you know what you can afford to do and what you cannot
- That you know your product well
- That you do your best to employ and train good staff
- That you do your best for your customers
- That you get the best deal on items you need to buy to resell
- That you take account of your own mental and physical well being
You CANNOT control –
- Changes in fashions
- Changes in the law and regulations
- Technological Change
- The global economy
- That customers stop buying your product
How to Address Risks you Cannot Control?
Awareness is your number one tool for dealing with impacts that cannot be controlled. You may not be able to control the economy, or changes in fashions or laws; but you can change the way you respond to such things. The faster you respond, the more you are able to minimize negative impacts.
The ability to respond will be affected by:
- Awareness –Being aware of everything that is happening in your industry is important. If you are well connected you will know what others are doing, and you will see trends earlier rather than later.
- Predictability – You can’t predict the future; but understanding the past and the present can give you insights into the future. If you are aware of new technologies that are being developed; you can prepare for the impact they are likely to have. If you understand cycles that occur within an industry, or society, you can sometimes predict opportunities in advance.
- Preparedness – Being prepared to respond is important. Develop contingency plans in advance of events happening. Consider the worst case scenario, and work out how you might respond to that situation if it does arise.
- Leadership –Some business operators lead, others follow. You can either accept risks as being inevitable; wait for them to happen, then react; or take the lead, and become the one who makes things happen.
Dealing With Government Regulations
Everyone must comply with the law in the jurisdiction in which you operate; but there are always options, if the law makes your business operation too difficult. The impact of legal issues may need to reach a critical point, but if that happens, you might consider:
- Shifting some or all of your business to a different jurisdiction (e.g. outsource work to people in another country, move some or all of you business to another state or country)
- A contingency may be to register your company in two different states or countries, and build a business in a way (if possible) that allows you to move activity from one place to another, if need be
Dealing with Global Economic Forces
Economic downturns will always happen and business operators will always need to adjust accordingly. The keys to adjusting appropriately is both awareness and timing.
- Awareness – Downturns can present an opportunity for strong businesses to increase market share; and cause weaker businesses to loose market share. There is an increased risk during these times though for both.
- Timing – If you shrink a business too soon, your market share can decrease and be difficult to recapture; but if you shrink it too late, the business can develop serious liquidity issues, and may collapse.
Don’t confuse downturns with seasonal affects. This can be an issue more for new businesses that are not yet familiar with seasonal impacts. E.g. Some businesses may have less (or more) sales during school holidays, or when the weather is warm. Many businesses see a decline in sales when there are major world events such as the World Cup, Olympic Games, a Presidential Election, or a major Natural Disaster.
Even if an event does not have a direct impact; people around the world can have their attention diverted to watching the news, rather than shopping for your product or service.
