Unforeseen circumstances are inevitable in running a business, making it crucial for every entrepreneur to take risk management seriously. Risks such as cybercrime alone make up 43% of leading business threats worldwide. Knowing what to do when the market experiences a downturn can be the needed tool to save your business. More so, without pre-emptive risk management, an unexpected surprise in the economic or financial environment can collapse your business. What measures do you need to take to minimize such hazards to your business? Here are some to consider.
1. Business and commercial insurance
In the business world, one effective way to minimize risk is to get insurance, and commercial insurance acts as a buffer for businesses and is worth considering if you don’t have one for your company. Fortunately, with business growth around the world, the insurance sector is vibrant, and there are several packages available to make it easier for business owners to choose from. Be wary of deals that are too good to be true, as those only exaggerate claims for marketing purposes.
In situations such as workplace accidents, natural disasters, or business reputational damage, commercial insurance will act as a safety net to protect your entity. Additionally, business insurance assures entrepreneurs of something reliable to fall back on in a worst-case scenario. One important thing worth knowing is that the insurance package you purchase for your business should protect your employees. Having a wide coverage is an indication of an excellent risk management measure.
How can you decide on which package works best for you, your employees, and the business in general? First of all, you need to assess your liabilities to determine what’s suitable. Secondly, your package must always include the following:
- Life insurance
- Professional insurance
- Disability insurance
For a little cost, you can transfer your risks to an insurance company, and that’s far better than losing so much more in the absence of a cover.
2. Diversify products or services
As the saying goes, don’t put all your eggs in one basket. Not only does product diversification make your business competitive, but it also offers your customers options. Most importantly, it creates separate income streams for you as well. Product and service diversification caters to risk management because of the different revenue channels each one offers. Therefore, if one product or service type fails, the others can hold the fort and prevent your business from going down.
Furthermore, this risk management measure helps entrepreneurs create and sustain customer interest in the business. This is a crucial business element mostly because it contributes to giving you a competitive edge over others within the same space or niche. It has never been an advisable business move to depend only on one product or service as an entrepreneur. Therefore, when you diversify, always ensure that the new offerings are of high quality and good enough to withstand competition.
3. Control internal business growth
In a bid to outpace competitors, some entrepreneurs take innovation to another level. Unfortunately, not many succeed in adding something new to their products and services, especially due to lack of planning and feasibility. Therefore, many inadvertently risk encountering hiccups in sales and public acceptance of the product or service.
Indeed, innovation is key to businesses, but it’s essential to strike a healthy balance to avoid “over-creating” at the expense of your business’ reputation. Remember that not every new product is poised to be successful at the first introduction to the market. Resist the temptation to choose quantity over quality.
4. Limit taking business loans
Businesses thrive on the availability of money, which is the primary reason lenders and financial institutions target companies for loans. As an entrepreneur, however, you should avoid taking business loans more than necessary. First of all, most of them come at high-interest rates, and with the unpredictability of the business market, it could become a major setback for your company.
On the other hand, if you need to take a business loan urgently, go for those with the least interest rates and manageable for all business seasons. To do this without problems, compare rates from different financial institutions, their terms and conditions, and most importantly, their treatment of defaulters. Do they give a grace period to defaulters who can’t fulfill their financial obligations because of a slump in business?
These are necessary things to find out as you assess likely risks. If you can avoid these loans and instead focus your attention on strengthening your business marketing and financial practices, there’s a high chance of raking in that much-needed revenue.
5. Implement a quality assurance program
A quality assurance program has a direct impact on your business’ brand and reputation. Without the assurance of quality products and services offered to the market, you risk losing customers and earning negative reviews. Through well-instituted quality assessment measures, you’ll have the opportunity to make required adjustments and corrections to minimize business risks. To enhance your business even further, you’ll find it worthwhile to assess your quality analyzing methods.
6. Review your existing internal control systems
Internal control systems are checks and balances instituted within the company to ensure everything goes according to plan and with minimal or no risks. These controls can be as uncomplicated as a precaution checklist that ensures that everyone adheres to them, such as last-minute checks before a product goes out or before rendering a service. Regarding finance, an example can be to assign specific employees to handle payment approvals and handling cheques.
Regardless of the business’s size, every company or organization risks fraud and theft. Unfortunately, this happens when there are no internal controls. In other cases, the controls may exist but are porous and can be outsmarted easily. Lax systems and poor accountability measures increase operational risks, and it’s vital to protect your business against such.
As a solution, ensure your staff is well-trained in issues of risk management and internal control mechanisms. With that background, they can become your internal whistle-blowers. Sometimes, as a control, your staff with the requisite knowledge on internal controls can make up your risk management team.
7. Know the law in your locality
No two states or localities conduct business the same way. While some places have the Personal Property Securities (PPS) Act, others do not. The PPS Act is a legal covering that protects properties. However, businesses can qualify only when they sign up to the Personal Property Securities Register (PPSR). That will include patents, equipment, vehicles, and shares that a business may own.
Therefore, if your business involves buying, selling, or leasing products, the PPSR will come in handy as it allows you to record all transactions. Additionally, with the PPSR, you can detect if a product you are about to purchase is stolen or not. Because it is a legal Act, it minimizes risk by protecting your personal and business interests.
8. Protect your data
Cybersecurity is a critical subject worldwide which your business can’t ignore. It can’t be understated in the business world, especially when the risk of losing vital data is incredibly high. More so, because these cyber-attacks are usually inter-linked, they negatively impact several businesses within a niche. Data is the lifeblood of your company; losing it could collapse your business and cost you lots of money.
Several companies who have encountered cyber-attacks lost so much and have had to go back to the basics to rebuild. Remember that you have access to essential customer data as a business, and losing that to third parties could mean legal suits for non-compliance with data protection laws.
As already mentioned in the introduction, business risks are inevitable, and unless you take proactive measures to secure your company, you risk losing everything. You can implement an information security management system to eliminate risks in your business. However, regularly reviewing your system is crucial for guaranteeing that the ISMS effectively reduces risk to information to a manageable level. For instance, an ISO 27001 audit can guarantee that information security flaws, incidents, and events are properly and efficiently reported, handled, and remedied to protect your small business. Most importantly, you must review the steps you take regularly to ensure compliance and loopholes. Thanks to technology, many businesses can adopt tried and tested mechanisms to minimize risks.