13-STEP BLUEPRINT TO MINIMIZE BUSINESS RISKS
Both large corporations and small companies are prone to business risks. Business risk management is crucial, given the kind of uncertainty that businesses face these days. As a business owner, there are things you can do to minimize the risks. As such, the purpose of this document is to provide constructive and feasible ways that can reduce business risk.
1) Identify the Potential Risks for Your Business
Both internal and external risks might affect a business. Internal risks include events like fire accidents in your office building. External risks include major events like an economic downturn, disruption in the supply chain, or weather hazards. Identifying the potential risk factors will help you to be better equipped to handle them.
2) Follow an Automated Payroll System
Technology is an excellent and effective way to save time and resources. To increase the accuracy of your finances, you can utilize automated payroll software. Such technology will also enhance the financial risk management in your business and help you eliminate manual errors. This automated software will identify fraudulent activity and immediately notify the necessary staff.
3) Monitor and Manage Your Money Closely
Create a budget and do your best to follow it. Measures like quickly replacing a lender who stops offering credit and having a plan to handle the absence of a major customer will help you stay in control of your finances when unforeseen problems arise. If your computers are hacked, having separate operating accounts with cash in them can help you stay operational.
4) Consult a Legal Expert
One key way to lessen the threat to your business is to ensure that you follow all federal, local, and state laws. This will help you to reduce the chances of government fines, employee, or customer lawsuits. A legal expert will help you choose the right insurance policies, including the director’s and officer’s insurance and general liability insurance. An employment lawyer will help you establish precise employee policies and company reporting procedures to protect you to the maximum degree.
5) Diversify Your Revenue Streams
Your business should always have multiple revenue streams instead of just one. This means that you should have multiple clients, products, or branches. When one of them collapses, you will have a backup plan in hand and will be able to pay bills and employee salaries.
6) Financial Risk Management with Insurance
While it is true that insurance doesn’t eliminate the risk factors, it will support you from taking the entire financial burden when a crisis arises. Hence, choose a proper insurance policy for your company. Different types of insurances can help in different instances like disability and sickness insurance, digital insurance (during hacking), management insurance (when an employee makes a mistake), etc.
7) Expand the Offerings of the Business
Irrespective of whether the business is involved in deals with services or tangible goods, when the number of offerings is more, the risks will be significantly less because of backup sources of funding. Depending on a single product will lead to high-risk factors, because, over time, people may lose interest in a product, or a large competitor may dominate the market. Hence, don’t have “all your eggs in one basket.”
8) Avoid Long-Term Commitments
If you run a small business and are not yet established, avoid making long-term financial commitments aside from those necessary to run your business properly.
9) Implement Safety Measures for Financial Risk Management
Ensure that your properties have the best safety measures in place. Follow the same for your employees too. Safety precautions like installing security cameras, burglar alarms, sprinkler systems, and smoke detectors are crucial for inventory protection. Preventable disasters and employee injuries are the most common and biggest risks that cost companies dearly.
10) Have a Proactive Risk Management Plan in Place
Having a proactive risk management plan in hand is integral to minimize risks. This should include tactics and messaging. They will address both the internal and external risk situations. Your risk management plan should include a section for every type of risk. After the risk management plan is ready, educate your staff and employees about it. Make them aware of how each of them plays an active role in mitigating risks for a business.
11) Have a Solid Business and Marketing Plan
Apart from a risk management plan, companies should also have an effective business and marketing plan. This will help in reducing the risk factor and will also give you a better chance at success. Consulting an expert and having a documented action plan for your business and marketing has been statistically proven to provide successful risk management within these contexts.
12) Limit Your Loans
Every business will need a loan to get things done. Credit cards, overdrafts, short-term loans and long-term loans are some types of loans that help businesses. However, it’s best to decide a limit for how much can be borrowed. Ensure you have enough capital to manage the repayments of your loan and that you have enough time to repay the loan. Consider whether taking money from savings can get the job done.
13) Have a Plan for Budgeting and Expenditure across All Departments
Outline a budget for different departments of your business. Identify the short-term and long-term goals you have and the challenges you expect and draft a budget accordingly. Try to stick to your budget and review your performance frequently for financial risk management. Whatever you do, do not lose track of your spending. Try to stick to the predefined numbers as closely as possible.