Starting a small businesses is a bit of a gamble, and thus entails a number of risks, from start-up to execution to maintenance. The question is: do SMEs really know how and what it takes to mitigate business risks which can affect operations, increase expenses and reduce profit?
For sound and better business management, here are the elements of a risk management plan you should know and practice to foresee risks way ahead, and to avoid their repercussions:
STEP 1: Identification
With each business function, identify potential risks. These are defined as anything that could disrupt or incur loss for your business. This definition is fairly important because with business owners having their hands full, these small risks can rapidly grow when ignored or overlooked. Covering all your bases is definitely the foolproof way to go. Can you identify with at least one of these common risks and aftereffects?
- Missing deadlines due to inconsistent/inefficient workflows
- Stale sales and marketing strategies equating to low revenue
- Unsound financial planning leading to Insufficient cashflow that can halt daily operations
- No savings plan for large emergency/ad hoc payments
- Incomplete licenses/permits to operate ensuing legal issues
- IT-related issues
- Poorly conceptualised and written SLAs
There are also risks associated with people in and out of your business:
- Customer dependency such as late/fluctuating payments from regular customers
- Suppliers’ failure to deliver
- Staff shortage or underperforming employees
STEP 2: Assessment
After identification, assessing the likelihood of each risk and determining your business’s capacity to resolve each follows. You can do a simple table marking each as ‘very unlikely/low’, ‘moderately likely/medium’ or ‘very likely/high’, determine the impact then put a value on each of them to have a clear picture of which risks you should prioritise. Be realistic with your measures, financial capacity and timelines.
STEP 3: Management
With these risks targeted and analysed, mitigate these through formulating cost-effective solutions: policy & process development, proper task delegation and quick implementation. Be it financial, HR, IT, operational or marketing solutions, ensure that they at least minimise the likelihood and impact of these risks.
STEP 4: Monitoring
Are your solutions correct and/or adequate? Take control measures, monitor all your solutions and update/revise them if the target goals are not met. Risks may or may not be eliminated quickly and easily, and some may even be continually present and recurring depending on their nature and which part of your business they are part of. Focus on what can ultimately be removed and keep manageable risks at a minimum if they are deemed unavoidable.
Further your business education by making a sound risk management plan – consult with a business solutions provider to have your risk table and contingency plan checked and ensure that you have covered every possible stumbling block in your business’s sustainable growth.
Cutcher & Neale’s myCEO Service aims to drive all aspects of a business towards achieving their vision through an internationally recognised systematic process. If you need help with your risk management plans, contact us and let us know exactly how we can help you.