Risk can be a scary word for small businesses. In the wake of the Global Financial Crisis, the ghost of economic disruption is still haunting the commercial landscape and preventing many enterprises from taking advantage of key opportunities.
However, risk is an unavoidable part of doing business. In fact, you must often take on a certain amount of risk if you wish to successfully innovate and pry market share away from competitors.
This is where effective risk management becomes crucial, as you'll need to identify weaknesses and mitigate potentially negative outcomes. Faced with today's ever-evolving market conditions, companies that fail to address these challenges could find themselves struggling to keep up with more agile rivals.
To help you optimise your risk management, we've compiled four tips that should strengthen your internal and external processes.
1. Embrace risk to innovate
One of the main hurdles small business owners must overcome is the tendency to view risk as overwhelmingly negative. This mindset can lead to 'play it safe' strategies and a preference for the status quo.
Rather than avoid risk at the expense of innovation, you should incorporate it into core decision-making conversations. Carefully predict the return on investment of launching new products or ventures, making sure you don't put all your eggs in one basket.
Accurate research and data should always underpin your strategic intentions - taking the plunge on a new initiative based on a hunch or market assumptions could prove a costly mistake.
2. Hope for the best, plan for the worst
Unforeseen circumstances can have a devastating impact, so it's important you prepare for as many worst-case scenarios as possible. Whether it's a natural disaster, failure of crucial IT systems or a breakdown in essential machinery, you must identify the biggest problems.
A typical risk management approach involves identifying all events that could cause significant disruption to operational capacity. These should then be analysed and ranked according to their likelihood of occurring and the predicted outcome.
You should introduce extensive contingency plans for the most expensive and/or likely problems as a priority. However, you'll want sufficient measures in place to handle the majority of eventualities, regardless of how remote.
3. Have a Plan X, Y and Z
In today's business environment, it's simply not enough to just have a Plan B. Eventually, your company is likely to face a situation that falls outside the scope of your risk management plan.
Do you have a safety net for these circumstances? Most organisations invest in comprehensive business insurance to protect against potential issues, but it always pays to have a Plan C, D and E … all the way to Z.
Debtor finance, for example, can offer you flexibility when facing liquidity risks. This can be invaluable for managing cash flow and securing a reliable stream of income. A debtor financing facility is equally useful for growth-oriented companies that need capital to expand without taking on additional risk.
4. Document and review risk management
Implementing a risk management plan is just the beginning. You'll need to ensure processes are written down and thoroughly explained to key stakeholders.
Testing existing procedures is vital, as is regularly reviewing and updating your risk strategy. For example, new technologies are constantly shaping the workplace and small businesses need to be prepared to incorporate and address these changes.
Remember, risk management doesn't occur in a vacuum; you'll need to assess the ability of your staff and infrastructure to cope with the demands placed upon them. Businesses that tackle these issues head on will be better equipped to grow as market opportunities present themselves.