Managing Business Risk
How are you doing?
An often-neglected section in many of the business plans that I’ve seen from entrepreneurs is the risk management section. What can go wrong; what will you do about it?
And like all the sections in your business plan, it needs to be regularly reviewed and revised to ensure that it is still appropriate to current conditions and the plans and priorities of the enterprise. Now is a good time to review how you’re doing. Your risk management and mitigation strategies are certainly affected by current global conditions as we move from a two-year pandemic into the “living with Covid” phase at the same time as we’re re-structuring economic relationships and geopolitical alliances in response to the Russian invasion of Ukraine. Risks to your business that were not anticipated two or three years ago are now affecting everyone.
My recommended approach to managing business risk, from start-up to exit, is first to distinguish between the risks you can manage and those that are outside your control. What could go wrong? How can you prevent it or protect yourself from the consequences?
Most risks are predictable, but probably not avoidable. Here’s my checklist for reviewing your risk management strategies.
- Factors outside management control: economic cycles, decline in demand, changing customer preferences, trade restrictions, incentives and disincentives to certain business activities.
- Economic conditions: Changes in government regulations, taxes, fees, foreign exchange, and interest rates.
- Issues within management control: dependence on key employees, customers, and suppliers; computer security and disaster recovery; labor availability and staff turnover; new competitors and new business models; new tools and technologies; and changing demand trends.
- Employee agreements, supply contracts, leases and insurance plans may provide some protection from worst case scenarios.
Are you prepared to respond to the next round of unexpected risks to your business?
Be better. Do better.
Del Chatterson, your Uncle Ralph
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Read more of Uncle Ralph's advice for Entrepreneurs in Don't Do It the Hard Way & The Complete Do-It-Yourself Guide to Business Plans - 2020 Editions.
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