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No matter its size and location, your business will deal with many unforeseen risks. However, with proper risk management, you can build confidence in your external and internal stakeholders. For example, you want to ensure that all business decisions are carefully vetted before reaching the implementation stage.
But no matter how good you are at solving problems, you need to understand the various business risks your business is likely to face and how to manage them. This is exactly what we will be covering in this quick guide.
Types Of Business Risks
As you start a business, you want to know the rules and regulations that might affect its operations. Due to the dynamic nature of the legal landscape, compliance can be such a tricky subject to maneuver around.
For starters, you need to be aware of occupational health and safety laws, taxes, equipment certification requirements, etc. Note that you can’t defend yourself by saying you weren’t aware of these regulations.
If anything, the nature of your business might be different after some time, which is why you need to update yourself with the latest shifts and adjustments in the legal field.
To avoid falling on the wrong side of the law, consider getting a reputable attorney to guide you through. While at it, be sure that they are experienced in the market you intend to explore. A good professional will help you get all the paperwork right to save your business from legal complications.
Financial risks can take many shapes and happen for a variety of reasons, such as increasing cybersecurity insurance rates. For example, consider the following situation;
A business loan is extended to your company by a financial institution. As the founder, you choose to act as the guarantor by tying your rental property or vehicle to the loan.
Unfortunately, business goes down and your company is unable to pay off its debt in good time. As a result, your bank comes for you asking to take away the assets as part of its repayment.
This is one of the many ways financial risks manifest when running a business. To prevent it from happening to you, you can implement measures like taking out life insurance for businesses. Alternatively, you can hire a professional to calculate how much risk the business can afford to take at any time.
Finally, work on creating multiple sources of revenue for your company. If you only have two to three clients from whom you get funds, then don’t be surprised if you slump into a financial risk in the event of their stopping your engagement with them.
Due to faulty products or services, bad leadership or employee publications, and many other high-profile failures, many businesses have lost their market strength. These are the sort of reputational risks you should learn to mitigate from the onset.
It’d be impossible for your business to attain its bottom line if you let these kinds of risks occur. In the worst-case scenarios, these are enough to cause your business to lose its stamina or even crumble.
To avert possible reputational risks, first, ensure that all your employees understand the vision and mission of the company as well as the set organizational standards. Workers who truly understand what’s expected of the business won’t struggle to paint a good image out there for the sake of your company.
Operational risks can range from internal, external, or both. External operational risks include natural disasters like floods or earthquakes or a pandemic that makes people spend more time at home.
On the other hand, a lot of internal risks result from human error, such as accountants writing wrong amounts on checks or a developer keying in the incorrect code. No matter the type of operational risk, they all lead to reduced performance of your business.
So how do you ensure that operational risks do not cripple your business? Simple, first try to outline all possible operational risks to which your business is most exposed. Then come up with proven ways to deal with them if they happen.
For example, you need to have a backup power source in case of an unforeseen blackout or assemble a team of IT experts in case of recurring cybersecurity issues.
Is Your Business Ready For Risks?
Business risks are never-ending and you can never know when they will strike. But don’t fret. All you need is for your business to do its due diligence and brace itself ahead of time for the four types of risks we’ve covered in this post.
While some of the risks are not so easy to prevent, you can always do something to reduce their impact on your business.
How are you managing your business risks? Share your most powerful strategy by leaving a comment below.