It’s true that business is built on hard work. But it’s also true that business is always a gamble: there are always risks that could make it all go crashing down, some of them you can see, some them are hidden in the woodwork. While you can’t do much about what you don’t see, it’s always a good plan to cover your bases and employ a comprehensive risk management plan.
Most businesses do have some sort of risk management system in place against particular types of risk; whether or not they’re comprehensive is another question. But generally speaking, there are only four kinds of risks that you need to be wary of in order to guarantee your firm’s future:
These are extraneous risks that have to do with your firm’s place in the economy or, broadly speaking, its business environment. Shifts in foreign exchange values, interest rates, etc. will affect how your company performs, and more often than not, these are beyond your control.
Still, there are still ways for you to mitigate such risks by identifying which market risks are most likely to affect your firm and develop a hedging strategy to combat them. Once you’ve done your homework and identified such risks, keep a close eye on them and “read the tea leaves,” so to speak, to determine the whens and hows of your strategy. As an example, one popular way today, especially in the realm of investments, is to mitigate volatility by creating group assets through the diversification of your portfolio.
This is actually more common than you think. Truth is, whenever you loan a sum to or perform a service for someone, you’re facing a credit risk. A credit risk is simply the potential that a counterparty fails to pay you a sum due you. But these risks aren’t something to sneeze at either. Depending on the amount owed you, they can compromise your plans, or worse, your own standing and assets.
Say a counterparty fails to meet their payment deadlines, are you prepared to deal with that risk? Planning ahead and making sure to cover your bases by leaving a paper trail of your transactions and taking legal action when appropriate can save you a lot of grief in the end. One of the most popular ways to mitigate credit risk has always been to buy insurance covering you for a particular type of risk, which, for this instance, is trade credit insurance.
Unlike the first two, this type of risk is well within your control, more often than not. An operational risk is defined as a potential loss from internal processes that have not been met or have malfunctioned. This is a rather broad category, seeing that companies usually have a wide spectrum of operations, and each of these bear a particular kind of operational risk.
Inefficiencies, negligence, and malfunctioning equipment all fall under this category. Naturally, risk management can also be classified under this category, too. For example, in the event that a compliance team/person fails to properly keep track of their firm’s certificates of insurance, their company is faced with double the liabilities, since this amounts to more than just losses in productivity.
This is within your control in that you are ultimately responsible for how other people see you. However, it’s also kind of not, in that other people will make up their minds about your firm, whether positively or negatively, whether you like it or not. Nevertheless, your reputation contributes significantly to your brand’s performance in the market, so it’s one of the most important intangible assets you have, especially in the sense that it affects your stakeholders to a significant degree.
Managing this risk takes a lot of PR work, but it also has a lot to do with the company’s choices and structure with regard to structure and direct relationships with customers, suppliers, and employees, and how these relationships affect the company’s broader image.
Managing Your Small Business’ Risks
No business is risk-free, but that doesn’t mean that you just take those risks as they come. At the very least, there are things that you can do on the operational and reputational level to mitigate those risks, especially when it comes to the former.
COI Tracker allows you to minimize potential risks in the form of liabilities from improperly managed COIs by automating compliance tracking’s most crucial process. Try it for free today, and discover a whole new world of ease in risk management today.