Risks Within a Business

How risky is your business?

Over the past week, I've been speaking with several business owners and, for some reason, the same theme keeps cropping up time and time again:, risk.

Each owner was sharing their frustrations, their problems, everything they were experiencing and when I stepped back and looked at what was really going on, I realised that all these issues stemmed from an element of risk within their business. Issues which they weren't initially aware of, until problems began to arise.

These owners were talking to me because the issue that they were experiencing or the risk within their business had started to cause a negative impact on their company.

I have experienced this personally and, unless it is recognised early, risk is rather like an underlying illness, remaining dormant, almost undetected, until it becomes so big and the symptoms become so noticeable, that the person has no option but to do something about it.

Unfortunately, by that time, the problem is so big, it will require an immense amount of time, knowledge, experience, and finances to fix.

However, if the owner had been able to tackle these risks at an earlier stage, it would have been so much easier to fix.

Let's look briefly at the definition of business risk.

Business risk is anything that negatively impacts the company's profitability or leads to its ultimate downfall. Basically, anything that threatens the company's ability to achieve its financial aims and goals.

Now, I appreciate that there are many, many risks that can impact an SME and so I have grouped the most common risks into seven very broad categories:

1. Financial risk.

This is not how profitable or how financially viable the business is, what I'm talking about here is the importance of having real time financial data, allowing the owner to make informed decisions.

2. Basic internal housekeeping.

This covers all the company’s documentation: the HR, the leases, contracts, supply contracts, employment contracts, etc.. Are they present? Are they up to date?

3. Product or service dependency.

This relies upon the owner having key information to show whether or not their business is over-reliant on a particular product or service. If demand for that product or service were to decrease, this would negatively impact the business.

4. Supplier dependency.

This is very sector dependent but we need to look at how dependent a business is on a particular supplier because, should that supplier stop trading or increase their prices, or maybe even get bought out by a competitor, that too will have a negative impact on the business.

5. Customer dependency.

Very much like supplier dependency, I see a lot of owners relying far too much on particular customers for their turnover and, if those customers were to either cease trading or go elsewhere, that too will impact the business negatively.

6. Owner dependency.

This is a major factor. This is where an owner can't be away from the business, such as to go on holiday, ? without having to take phone calls, respond to emails and deal with problems whilst they're away. In this scenario, the problem lies in the owner's day-to-day involvement within the business.

That's the risk.

The fact is, a business will always carry an element of risk;? that's just inevitable. However, we can mitigate or reduce the impact that risk will have on the business, simply by being proactive and having all the required information to hand.

Over the coming weeks, I will be sharing tools and insights as to actions you can take to look out for and be more aware of certain risks that could impact your business.