T.S. Eliot once wrote, “Only those who will risk going too far can possibly find out how far one can go.” Running a business is inherently risky no matter how long you have been in your industry.
According to Statista, supply chain disruptions are the most common threats large businesses face. This trend might be due to their dependence on global trade, given their size. Meanwhile, small businesses often face cyber-related incidents, perhaps because of their inadequate investment in cybersecurity and data management compliance.
In any case, preparing for risk is essential. Let’s discuss the risk you might encounter and explore a few practical strategies that can guide your company through turbulent times.
What are Business Risks?
Business risks are challenges that can impact your company’s operations, financial health, and overall success. They’re inherent in the business environment and may arise internally and externally. They fall under five categories:
- Strategic risks involve market trends, shifts in customer behavior, and other factors that might affect your company’s long-term goals or direction.
- Operational risks are what you face during day-to-day business operations, such as supply chain disruptions, equipment failures, or workforce management issues.
- Financial risks entail currency exchange fluctuations, interest rates, market prices, and other financial pitfalls influencing your organization’s economic performance.
- Legal risks exist when you fail to navigate your compliance and legal obligations, causing you to suffer from fines, lawsuits, and reputational damage.
- Cybersecurity risks threaten your business’s IT infrastructure and data management capabilities. They include hacks, breaches, and other cyberattacks compromising sensitive company and customer information.
Business risks threaten your organization’s standing, but understanding their nature can help you develop a comprehensive risk management plan and mitigate their effects.
6 Tried-and-Tested Risk Management Strategies
Risks are inevitable. However, what can save your company are the strategies you employ to manage them effectively.
1. Implement a quality assurance program
A fundamental way to mitigate operational risks is to ensure your offerings meet quality standards. In effect, you reduce the likelihood of defects, recalls, or negative reviews. Such a proactive approach to quality management strengthens your brand reputation and reduces the risk of financial and operational problems subpar products or services may cause.
2. Limit high-risk clients
This tactic involves understanding and managing your customer base. High-risk customers—like those with a history of payment issues, legal disputes, or financial instability—threaten your company’s economic standing. So, limit your transactions with them to mitigate financial risk. You can research their credit reports and establish clear payment policies early on.
3. Get an insurance plan
Insurance protects your organization from property damage and business interruptions. As such, obtaining one is essential to your risk management strategy. First, identify the risks you commonly face during operations. Then, work with a commercial insurance agent to customize a policy that adequately protects your assets.
4. Diversify revenue streams
Placing your eggs in a single basket—or relying on a single revenue—increases your chances of crashing after a single cash flow disruption. On the other hand, diversifying your revenue streams can mitigate the impact of market fluctuations or industry disruptions. So, expand your offerings and target different customer segments to explore cash management and diversification opportunities.
5. Limit your liability
Most overlook the benefits of this strategy. However, structuring your business to limit your liability will shield your assets from business-related risks. First, you can form a limited liability company (LLC) to share risk among your fellow members. You may also add robust indemnification clauses to your service contracts to limit exposure to potential disputes.
6. Build a risk management team
Establishing a dedicated risk management team allows you to focus on your core competencies, so you won’t have to worry much about company liabilities. It collaboratively analyzes your business operations and external environments to pinpoint potential vulnerabilities. It can also mitigate potential challenges and respond swiftly to emerging risks, establishing long-term resilience.
Prepare Your Company for Business Risks
The dynamic and unpredictable nature of business means you’ll need a proactive, comprehensive risk management strategy. Business risks are constant, but implementing the above strategies can strategically prepare your organization for uncertainties.
Ultimately, remember that risk management is an ongoing commitment. Regularly assess the commercial landscape, refine your strategies, and stay attuned to industry trends. Only then can you empower your organization to withstand uncertainties and emerge stronger on the other side.
