In all facets of life, we all face different risks on a daily basis. The same is true when it comes to starting a new business. While risks have the ability to break you and your organization, with sufficient strategizing, you’ll ultimately be stronger in the long run. Especially for new business ventures, the earlier you make a plan to combat risks, the faster your company will reach new heights. With all this said, tackling risks is a twofold process. The first step is identifying the risks at hand. The second part is developing a strategic approach in order to maneuver past the risks. Luckily, we’re here to help you on this endeavor. By following along, you’ll gain a better understanding of risk mitigation so that your business can reach its full potential.
Understanding and Combating Common Risks
The risks a company faces come to life in a number of different ways. Each risk that is presented has a different potential impact. As noted, before it’s possible to develop a plan to face risks head on, the nature of each one.
One of the more common risks for new organizations are market risks. Loosely defined, a market risk is a risk caused by moving market variables. This could be changes in market prices, stock prices, interest rates, exchange rates, competition, market saturation, consumer preferences and more. Market risks are often referred to as systematic risks. This is because major changes in market conditions generally affect the entire market or system, and not just one company. While these risks are more complex than many of the others, here are some ways to combat them:
- Perform Market Research: Market research and analysis is extremely important to conduct before starting a business or in its early stages. It is oftentimes market research that compels someone to either invest or not into a company. Market research focuses on identifying the needs of an audience, their preferences and behaviors. Additionally, it’s crucial to evaluate competition during this process. Pay close attention to price points, market saturation, and niche areas that aren’t being tapped into. Doing so helps you to identify areas of need that your business can take advantage of.
- Be Adaptable: Always be willing to adapt and make changes according to market characteristics. While sticking to our original plan is always ideal, changing with the times ensures growth and longevity. On the same note, embrace innovation by keeping your offering relevant to your base of customers.
You probably already know what financial risks are, as the definition is in the name. Simply put, there are any risks having to do with money or capital. Common examples of financial risks include insufficient capital, problems with cash flow, challenges with debt or loans, and other unexpected expenses. If these risks aren’t challenged in a timely manner, they can lead to the downfall of your business. Combating financial risks comes down to sufficient planning. Here’s what to do in order to avoid or face common financial risks:
- Develop a Detailed Financial Plan: Work with financial and accounting experts to develop a financial plan for the company. While every financial plan is different, focus on a realistic expense budget. Additionally, be conservative when projecting the revenue that you’re expecting to earn. Solid financial planning starts businesses off on the right foot. With that said, it’s important to have financial assessments and meetings on a regular basis. As the company gets older, you’ll start to make decisions based on actual performance.
- Manage Cash Flow Effectively: When it comes to managing your finances, organization is the name of the game. Implement policies surrounding invoicing, payables and receivables, so that there are no delays or mishaps. It’s also a good idea to have emergency cash set aside.
- Diversify Your Revenue Streams: Continue to research different ways to earn revenue. The reliance on a single source of revenue is not ideal, since if it fails, you’ll have nothing to fall back on. Examples of new revenue streams include: new products or services, entering the online e-commerce market, and much more.
Operational risks revolve around the day-to-day operations of a business. These risks are commonly caused by ineffective or failed processes, systems, policies, machinery/tools or individuals that disrupt the flow of operations. Here are some combative strategies to use when facing operational risks:
- Develop Backup Plans: It goes without saying that every operation process you develop should focus on efficiency. With that said, even the best processes fail, so it’s crucial to also develop backup plans. For example, let’s look at the supply chain. Even if you’ve used the same supplier for 10 years, it’s suggested to identify alternative suppliers. If something goes wrong with the initial supplier, you’ll be covered and won’t need to panic.
- Choose Your Staff Meticulously: Having the right person for the job goes a long way when it comes to avoiding operational risks. Focus on the skills required for a specific position, and find individuals who align with the role. Intelligence is important, but equally important is the ability to learn and adapt quickly. Additionally, prioritize the training of your employees, and even offer them extra educational opportunities if necessary.
Advances in technology make things easier for us and our operations. Unfortunately though, with that also comes increases in risks like cyber threats, data breaches, and other systems failure. These threats often go overlooked, but they can be extremely costly if left unchecked. Here are some tips for navigating technology-related risks:
- Invest in Cybersecurity: It’s worth it for just about every type of company to implement some type of cybersecurity measures. This includes, but is not limited to: firewalls, anti-virus softwares, two-factor authentication, and secure data storage.
- Train Employees: If your company deals with sensitive information, it’s vitally important to train employees on best handling practices. Work with your IT team to come up with clear protocols for everyone to follow.
- Set Up IT Meeting Regularly: As the company head, you should meet with your IT team on a regular basis. During these meetings discuss any potential issues, vulnerabilities, or thoughts on security when it comes to technology.
Strategic risks come from poorly made decisions that affect the long-term stability of an organization. Examples of decisions causing strategic risks include: changes in management, launching a product too soon, lack of innovation, and much more. It goes without saying that failures on strategies happen from time to time no matter what. With that said, here are some things you can do to reduce these occurrences:
- Conduct Regular Strategy Planning Meetings: Implementing regular occurring meetings to evaluate current strategies and implement new ones ensures company-wide growth. We suggest having these sessions at least once per month. When developing new initiatives, make sure that they align with the businesses overall goals.
- Prioritize Market Testing: Don’t roll out new products or services without testing the market and validating the current demand. To get consumer insights before launching, offer free-trials or other offerings to encourage real-world feedback.
- Look to Trusted Team Members: If you’re second guessing a decision, reach out to trusted co-workers or managers for their opinions and insights. It’s easy to overlook issues, but when multiple people are evaluating something, this is less likely to happen.
Compliance and Legal Risks
Navigating the legal landscape of an industry is challenging, but necessary. It’s important to evaluate your sector’s legal requirements on a state and federal level, industry regulations, and any other compliance standards. When these things are ignored, the outcome can be costly legal fees. Here are some tips to ensure your business stays compliant:
- Work with Legal Experts: Consider outsourcing and hiring a legal or compliance expert who specializes in your industry. Legal professionals aim to help business owners grasp the oftentimes complex legal requirements. This will reduce the number of legal mishaps that occur from year to year.
- Read Industry Publications: Another way to stay up-to-date is by paying attention to industry associations, journals or other relevant publications. This practice keeps you updated on the latest information.
Understanding and successfully managing risks is essential for the development of any business. Especially for new companies, identifying potential risks ahead of time allows businesses to thrive knowing that there is a plan of action in place. There are a variety of different risk types, and in turn, each one has different combative strategies. By working with your team of peers, committing to a process of ongoing learning, and adapting with the times, you’ll enable your organization to flourish into the future.
While discussing operational risks, we touched on the importance of having a solid group of employees working by your side. In today’s competitive job market, one way to recruit top-notch employees is by offering a comprehensive employer-sponsored benefits package. Luckily for you, GHQ is your one-stop-shop for everything related to your company’s future health insurance package! At GHQ we have a quick and simple process that helps business owners such as yourself compare and find the best health plan in your area. We work with all of the nation’s top-rated carriers so you’re bound to find something that satisfies you and your team’s needs. At the end of the process you’ll get matched with a free quote. The only question left is… what are you waiting for?! To get started just fill out a form or give us a call at 888-571-0291.