Ah, risk! That unsavoury word that conjures both clear and muddy impressions in the minds of a business owner. Risk is an integral part of our personal lives. Almost every activity of our daily living has inherent risk – driving, eating, giving birth. However, we have built mechanisms, through safety procedures or self-control, trained medical practitioners, regulations, etc. to safeguard us from such risks.
Running your own business, in many ways, exposes you (and your business) to many risks. A key element of managing your business is to protect it from failure. The nature of risk your company is exposed to also typically changes as your company grows and evolves in its own life cycle. Many risks however have the potential to adversely impact businesses of any size. Events that are rare but carry highly disproportionate impact, such as Brexit, for e.g. have widely sweeping implications for most businesses.
Hence understanding the types and nature of these risk is critical to ensure long term survival of your organisation. Consider some of the following risks your business could face:
This involves risks of customers deserting your product (customer churn) or service in favour of your competitor’s. Credit risk is another common factor – customers could either delay payments or not pay at all. Customers are entitled to complain if they feel the product is not delivering to promise – rising customer complaints can be substantial risk. Customers expect the process of engaging with your business i.e. researching your products, buying, getting support to be increasingly through a digital medium – not having digital channels for your customers to interact with your brand or business could result in customers moving to your competitor
Disruption of supply chains can affect your production process. Suppliers could go bankrupt or deliver faulty parts or input services hence effecting your downstream manufacturing or service delivery operations. Logistics disruptions could delay shipments and impact your ability to complete customer commitments in time.
Market Change Risk
Competition in open markets can be relentless. Inability to keep up with technology could add significant costs and risks of disrupting your manufacturing or service delivery process. You could quickly lose customers if you do not have digital channels such as mobile apps or ecommerce facilities, as discussed earlier. Changing market regulations governing your industry could be another highly potent form of risk.
Quality employees make a quality company. Inability to attract high quality calibre can quickly erode your competitiveness. Inadequate training or a corrosive culture can often result in your top performers leaving the organisation.
We often associate risk with money matters. The above points show that business risk is significantly broader. However, managing financial risk is ultimately the key to survival. Managing your cash flow risks will ensure that you have adequate money to fund your working capital requirements while maintaining necessary capital expenditure to invest in growth. Export/import requirements could create currency risks. Level of leverage (debt) and interest rates can unduly increase interest payments and forcefully impact profitability and even ultimately solvency.
One cannot wish away risks. In fact, actively seeking risks is a crucial first step in managing them. CMC Business Advisors works with owners of SME businesses in identifying and managing business risk systematically and then helping put a plan for mitigation. Business owners who are able to master the skills of managing risks ultimately create well run, profitable and valuable businesses.