Knowing Potential Risks And Having Possible Solutions Prepared Makes Managing Your Business Less Stressful
In this third installment in our series on business success we talk about identifying risks to your business and how to prepare for and limit the potential damage they can cause. Because starting a business requires a high level of confidence in your concept and capabilities, this can be a challenge for business owners. It is often the case that the people who think through all the risks decide against starting a business at all. Those who have an unrealistic level of confidence refuse to consider the risks usually make unrealistic decisions that cause the business to fail; however, the ones who anticipate and plan for the risks are the ones who are best prepared to overcome them and keep their business alive and thriving.
The first step in reducing risks to your business is to identify what could go wrong. One of the main things to consider is competition. What other companies offer similar products or services as your company and why would a customer choose to buy from them over you? What would happen if customers didn’t want to buy what you’re selling anymore because of changes in the market or consumer behavior? Other risks could include potential regulations that might affect certain locations or even an entire industry. Another major risk for a business is the loss of key personnel, particularly those with special skills or certifications that may prevent work from getting done.
To protect the business, the owners and managers must think through how to respond to and mitigate potential risks. For example, protecting a business from competition can be done by identifying how other businesses position themselves to differentiate your operations. If the industry in which you operate is at risk of change, you may look to differentiate or update your business to cater to the market changes. For example, as many retail shops face challenges from online shopping, some have chosen to shift to a more service based approach by providing more information and allowing customers to physically see and handle items before they purchase. They may also offer a higher level of quality than online retailers provide. They may also offer training or maintenance for their offerings as a way to continue to engage with current customers while also to draw in customers that bought online.
Handling changes in regulations is a bit more of a challenge. Local businesses can address this by getting involved in local government to have early knowledge about what’s being discussed so they can ensure they contribute to those decisions. For industry wide issues, this may mean being involved in trade groups or other organizations that can or are discussing issues on a larger scale in order to control the impact or at least get advance notice to give more time to adjust and adapt.
Regarding staff, it’s important for business managers to understand all the roles employees play in an organization and to figure out what might happen if someone leaves for an extended period of time. Having complete redundancy in the organization may not be possible without significant expense, but having some cross-training and documentation can help prevent full paralysis if someone leaves and can’t be replaced quickly. Another option in the event of the loss of a key leader in the organization is having insurance to reduce the financial impact and to find a replacement. “Key person” insurance is a type of life insurance offered by most commercial insurance providers.
Speaking of insurance, it’s always a good idea to have insurance coverage to protect against certain events. General liability, professional liability (or errors and omissions), cyber protection (or data breach), and others are some of the types of insurance available. It’s worth talking to an insurance agent to discuss these options. Insurance alone is no substitute to the exercise of thinking through the risks, but is rather a decision to be made after considering which risks are possible or likely to affect your company.
This is just a brief overview of looking at and thinking through how to respond to the risks to your business. While many business owners and managers can identify risks, it sometimes helps to work with a third party to think through possible responses and solutions and to develop plans so, if something bad does happen, determining a course doesn’t become a crisis and instead becomes a routine business decision. Brightleaf Consulting Group has been helping businesses respond to risks for 15 years now and we’d love to help your company, too.
- John Thrush