Business Risk Management: 5 Risks All Businesses Should Be Prepared For
Any entrepreneur knows that risks are part of running a business. But again, risks are threats that can interfere with the company’s ability to achieve its goals.
While sometimes the person running the business can expose it to risks, some risks are completely out of control. External factors such as price fluctuation, competition, and government regulations can put your business at risk.
If not managed, business risks can cause serious financial losses and even render the business bankrupt. Every business needs to have a business risk management strategy to help identify and minimize these risks.
But before you start figuring out ways to manage risk in business, it’s important to know the types of risks your business may face. This article outlines those risks.
1. Financial Business Risk Management
One of the most dreaded risks in business is financial risks. These are risks that can either occur gradually or come suddenly, rendering your business bankrupt.
The risks involving finances can be in terms of credits extended to customers. In case your client is not able to pay the credit on time, then your business will be in big trouble. Sometimes lower interest rates may also affect your business financially as you’ll not get the intended profit.
Another financial risk catches up with you when your business is in debt, and you’re not in a position to pay on time. Sometimes, interest rates suddenly go up, and you’re forced to pay extra. This can put a lot of pressure on your business hence a big financial risk.
You can minimize business financial risks by making adjustments to your business plan and avoid harming your cash flow. You can also keep your debts at a minimum. Market your business diversely to avoid relying on one or two clients for your financial stability.
2. Operational Risks
These are either internal or external factors that interfere with the normal operations of your business. Operational risks can even force you to close down your business because it can no longer effectively carry out its day-to-day operations.
Internal factors that cause operational risks can be processes, people within the business, or technical failures. External factors can be natural disasters, power cuts, or other forms of destruction.
Operation factors can cost your business in terms of reputation damage, financial losses, or time wastage. However, if you manage the risk well and come up with a solid continuity plan, your business may manage to get back to its feet soon enough.
Come up with a plan that addresses all the risks. This involves training your employees on new operations. Identify what went wrong and come up with a backup system to save your business. You can also adopt cloud storage technologies to protect business data in case such things happen again.
3. Compliance Risks
Depending on your industry, your business operations are subjected to some strict rules that you must comply with. Your business needs to stay updated and vast with all the applicable laws and regulations from federal agencies and the state level for smooth business running.
Some of these laws come from agencies such as the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA). Failing to adhere to agency or federal laws exposes your business to compliance risks.
Non-compliance is a big issue that can get you in trouble with the authorities. You may face a lawsuit, fines, and penalties. You need to avoid such risks by being vigilant. View agency and government information to identify any changes or consult experts to help you with this risk management.
4. Strategic Business Risk Management
Strategic business risks are another type of risk your company should be prepared for always. When you start a business or begin a financial year, you must have a laid down plan detailing how you’re going to run your business. But even the best plans can hit a dead end.
When this happens, your business will face strategic risks. The company’s plans become useless, and you struggle to reach certain goals.
Strategic risks are caused by some factors such as new competition, change in demand, technological changes, etc. These risks can cause bankruptcy leading to your company eventually closing business.
However, if your business prepares for such risks in advance, it will not be so disastrous to cause closure. Your company can still survive this risk and get back to its feet.
5. Security Risks
While data breach is a common term in the business world, it’s a risk that no company wants to deal with. Unfortunately, security risks occur all the time and can catch your business by surprise if you’re not careful.
Imagine hackers getting access to your sensitive business data, or having some sensitive business information leaking to competitors. The worst-case scenario is your confidential information getting in the hands of the media where it can be exposed to the public.
This type of risk can badly impact the reputation of your business or even cause serious financial liability. You need to reduce these risks by putting more effort into security solutions that can help secure your business data. You also need a fraud detection strategy to help identify and reduce fraud.
One way to do it is by storing your sensitive business information on the cloud and using strong password protection. You can also consider training your employees in different ways to detect and handle cases of fraud.
Preparation Is the Key to Managing Business Risks
Business risks are there to stay, and no company is immortal to them. What makes the difference is how prepared you are for your business risk management. Will your business bounce back and stand on its feet after undergoing such risks?
If you can answer such questions confidently, then you’re prepared for the risks. If not, you can go back to the drawing board and develop a much better plan.
We will be here to help your business identify all the issues that can hold it back and fix them before they can become a problem.
Reach out and let us know how we can help your business with our security guides.