Many people consider a lot of things when starting up a new business – starting a website, doing marketing and advertising and getting the name out about your business.
However, while risk management doesn’t seem so exciting, it is one of the most important things you can do for your small business. But what do you need to know about organising risk management for your small business, and where do you need to start?
What is Risk Management?
Risk management refers to a business’ ability to prepare for the worst, and its ability to mitigate the negative effects from unforeseen events. Your ability to be able to get over bad events and business hurdles can define the amount of success you get later on in life. In order to analyse your business’ risk, you may need to speak to a seasoned accountant or a risk manager. Having an effective risk management plan and putting procedures in place to protect your business could be the difference between failure and success. But what is your business at risk of, and what do you need to do?
How Could Your Small Business Be At Risk
There are 5 different types of risk that could damage your business, and you need to be prepared for all of them. Any one of these types of risk could strike your business at any time, and you may only be able to protect your business by having a risk management plan in place.
The 5 different types of risk management are strategic, compliance, financial, operational and reputational. Strategic risk refers to any type of risk which is involved in your business strategy, including failure from a failed business plan. Compliance risk means that your business could be at risk from breaking local regulations and the law, meaning your business may be prevented from operating further. You may also be badly financially affected if you have to pay any fines. This is closely related to financial risk, which refers to anything that may cost your business a lot of money in the long run. For many small businesses, the financial risk is very high, and can be very tricky to deal with. Operational risk refers to internal issues which could impact your company’s day-to-day operations, such as technical or staffing problems. Your reputational risk is very significant, especially in the beginning stages of running a business. If you get a bad reputation such as being bad to work with or late on deadlines early on, this could be very difficult to shake off.
A good risk management plan will take every single type of risk into account, and have a plan to mitigate the potential damage from any of these risks. It is crucial to have an effective and accurate risk management plan in place when you start your small business, and it should be thoroughly detailed, factoring in things such as time and resources.
How to Create a Risk Management Plan
These are the many steps you need to go through in order to create a successful risk management plan.
Identify The Risk
The first step when creating a good risk management plan is also the most important one. After all, if you don’t know about the risk, how can you plan for it? Firstly, you need to identify all potential risks with your team. You could start by having a meeting with your staff, and asking them about any potential risks they could predict in the future. Make sure you make a note of all potential risks, so you have them all on record. If you need to, ask for help from a seasoned risk assessment practitioner.
Assess The Risk
When you have an extensive list of potential risks, you should assess how likely they are to significantly damage your business. Some risks are more damaging than others, and some are more likely to happen. Therefore, you need to be assessing and ranking potential risks in order to have effective risk management. This will help you know where to prioritise your risk management efforts, so you can have the best plan for your business in case the worst happens.
Managing the potential risks against your business has a multitude of different steps. There are many different types of risk avoidance, including avoidance, mitigation, transference, acceptance and escalation. Knowing the steps that you will take in case something significantly bad strikes your business could save your company from failure. Making sure that each step of your risk management reaction is documented will allow you to know what to do in the event of a tragedy striking. Your company’s response will look slightly different for every potential risk, so make sure that your risk management plan is as detailed as possible.
Review The Plan Often
In business, conditions can be ever changing. The potential risks against your business may change very often, as the world of business is ever evolving. Your processes may also need to alter slightly if your internal structure changes, or you make alterations to your everyday operations. It’s important that you review the plan often and update it as much as necessary, so you won’t be unprepared. If you aren’t prepared for the unexpected, it could cause more damage than if you had a plan in place. You should be reviewing the plan very often to keep your company as protected as you can.
There are many people that you can ask for help when it comes to preparing a risk management plan. For example, accountants are usually very adept at identifying financial risks. People who are fully trained in risk assessment can usually help with every type of risk. However, you can also ask for help in unexpected places. Credit insurance brokers can also help you identify types of risks for your business, as they assess risk every single day. Don’t be afraid to enlist outside help when it comes to analysing the ways your business may be at risk, as it’s better to be safe than sorry.
Organising risk management for your small business can be one of the best ways you can protect your company – start making one today.