When you run your own business, there are few things more important than being prepared, whether that be for an upcoming financial investment or a completely unexpected bump in the road. This will reduce your risk in a variety of areas and, in turn, help to assure the long-term success of your business.
To prepare yourself for anything, it’s a good idea to identify the issues you are likely to face and put a plan of action in place to help you deal with them, should they arise. The following can help you do just that.
Financial Risk
Businesses need money to survive. Unfortunately, though, no matter how lucrative you are in one financial year, there’s no guarantee you’ll enjoy the same level of success a year later. From human error to external economic crises and other similar factors, there are plenty of reasons why it’s near-impossible for entrepreneurs to avoid financial risk altogether.
Thankfully, there are things you can do to mitigate that risk. Emergency funds and adequate insurance policies are a good way to give yourself a safety net. In addition, having a second income source can alleviate financial pressure, especially for up-and-coming entrepreneurs.
Essentially, though, the best way to manage risk is to prepare. Say, for example, you were planning on investing a significant amount in a new endeavor. By using the data available to you, you could perform a break-even analysis. This will show you when exactly your investment will start to pay off and whether it’s worth making.
Reputational Risk
Money is central, but your business is unlikely to make much if it has a bad reputation. Increasingly these days, consumers are jumping ship from brands they feel they can no longer trust. So, if your business faces reputational damage, chances are you’ll lose even your most loyal customers.
Most companies will have processes in place to manage their reputation in response to something that has already happened. But, it is the businesses that aim to prevent reputational risk from the outset that fare better.
You need to implement measures that aim to prevent potentially damaging incidents. Also, ensure you really get a handle on public perception of your brand and always deliver what people expect from you, if not more. Finally, center open and honest communication to make it clear that your company puts customers first, no matter what happens.
Strategic Risk
Any business decisions you make as an entrepreneur carry strategic risk. As such, it’s a tricky one to avoid. Even the best business people misjudge the market sometimes, fail to scale in time to meet increased demand, or misunderstand the strength of their competitors.
However, it is possible to prepare for strategic risk and manage it in that way. To do so, you will have to take the time to assess any new strategic decisions you plan to make and identify the potential risks that might hinder its success. In addition, set realistic KPIs to monitor the progress of any new strategy and prepare to adjust your direction if they do not perform as expected.
Compliance Risk
Your business could potentially face penalties for failing to comply with legal and financial regulations. Whether they’re specific to your sector or they apply to the country in which you work, you must identify and avoid noncompliance at all costs.
To do so, assess your business’s level of compliance risk, whether it be a financial risk, business risk, process risk, or something similar. Then, ensure you have the resources and budget in place to manage the relevant issues, should they arise. This could prove to be a time-consuming process, but it’s worth it in the long run.
Operational Risk
Operational risk management is important because it can very easily be compromised by ineffective internal systems, human error, or unprecedented external circumstances. The coronavirus pandemic is a case in point, helping to prove that even the most stable businesses can be rocked when unexpected events bring operational cracks to the surface.
And, as with the pandemic, making good use of technology is the best way to ensure that operations aren’t suddenly hindered. Not only can up-to-date, adaptable programs make businesses more flexible, they can also help to make them more resistant to risk in the first place.
AUTHOR BIO:
Luke Fitzpatrick has been published in a variety of publications such as Forbes, Tech In Asia, and The Next Web. He is also a guest lecturer at the University of Sydney, lecturing in cross-cultural management and the pre-MBA program.
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