Risk is just a part of life. No matter where we are, risk is involved. Even driving to work each day is risky. What matters is managing that risk appropriately, which is why road rules, seat belts, airbags, and side mirrors are so important in getting from A to B correctly. We can extend this metaphor into the business world also, where not being afraid of business risk but managing it is essential.
Even large corporations can make mistakes from time to time. Failed ventures, unpopular services, misjudged marketing outcomes, all of this can be a real problem if not addressed. But we manage risk by doing our research, by learning from our mistakes for next time around, and by limiting the impact of failure.
That’s the philosophy behind LLCs or limited companies, that being able to contain our financial investments to a singular entity can prevent us from losing everything in the event of failure. With that in mind, let’s consider how to manage risks and their impact for the better:
Cash Flow & Financing
It’s important to note that revenue is not just the sole marker of success in a business, but how well your cash flow works, how you can apply funding to various investments within and without your firm, and your general accounting health.
Running out of capital can cause major issues, especially if it prevents essential investments or purchases when needed, so anything involving cash flow has to be a top priority for risk management. That might involve padding your emergency fund, negotiating better payment terms, always, always, always ensuring there’s money for your payroll, and knowing where your cost-cutting measures should never touch (like in quality assurance, failures of which we’ve seen from Boeing lately).
This will ensure more robust protections, and hopefully mitigate any issues that come from poor cash flow.
Supply Chain Safeguards
These days, with everyone’s operations so globally intertwined, any major supply chain disruption can cause an annoying domino effect if you’re not prepared. Just look at the havoc caused by COVID lockdowns – shipping networks suffered, semiconductor shortages were common and led to tech shortages (such as the release of the hotly-anticipated Playstation 5), you name it. So do you have robust backup plans ready to go if a key supplier no longer has the capacity to serve you? It’s not just about geopolitics either, it might be that dwindling supply, new practices, other regulations, and more can cause a problem.
Now, you can’t possibly account for every issue in the world, but you can definitely use tools that help you manage suppliers with ease. This gives you the means to ensure, at least on your end, that supplier organization, audits, reviews, negotiations and tracking are perfectly organized from your side. That way, accidental incompetence on your end is one possible fault that you never, ever have to worry about.
Cybersecurity Muscle
Most people are not tech wizards, and that’s okay. Much of our business handling is, though, for better or worse, handled using digital systems. As it has been recently seen, even the Ministry of Defense in the United Kingdom has recently suffered cybersecurity attacks. If they can, so can your business.
Data breaches, ransomware, corporate espionage – there are a whole range of issues to be aware of and try to limit. After all, a single cyber incident could absolutely decimate your finances, operations, and hard-earned reputation overnight.
That’s why investing in serious cybersecurity firepower is so necessary and worth never cheaping out on, and that will include routine risk assessments, air-tight incident response protocols, thorough employee training, and top-shelf protective software. An ounce of prevention for business risk is worth a whole lot when your entire livelihood is on the line.
Workplace Safety
A workplace safety issue is a business risk that can cause problems not only for your reputation, but in terms of criminal liability should neglect or a lack of safety protocol and regulation be followed. However, of course, financial or operational damage pales in comparison to the trauma of someone actually being hurt.
Taking steps to review hazards and train staff in best practices will always be essential no matter what business you run, from signing a slick floor, implementing heavy machinery malfunction protocols, or protecting against toxic fumes, it’s essential to make sure all of these practices are well defended against.
While it can sound like a somewhat impossible goal to reach, having a target of 0% harmful injuries from day one is essential. Note that this is the one business goal where “acceptable parameters” are not acceptable. It’s not a good result if 0.2% of the staff you retain over the life of your business are injured. Zero should be the only acceptable option, and this will help you keep your priorities well-maintained.
Environmental & Climate Factors
It may seem strange to consider this as part of your tyle=”font-weight: 400;”>>business planning, not only as an element of a sustainability strategy your business embarks on for good, but as a threat: Climate change, natural disasters, and other environmental factors can pose a very real physical risk to many businesses these days. Depending on where they’re located. That might seem a bit odd, but think of how many Australian or Californian businesses have been affected by wildfires in the last few years, or how issues can affect the supply chain as we discussed above.
That might involve rising sea levels and intense storms threatening coastal facilities, or drought conditions straining agriculture supply chains, sometimes using a few methods to protect yourself from this, even just another set of suppliers for contingency, can make a helpful difference.
Intellectual Property Protection
Your ideas, inventions, and creative works are what give you a business worth managing in the first place, and while you may have patents in place or approved commercial licenses, it’s still best to keep your value secret.
This also ties back into our concerns about cybersecurity, because, intellectual property theft is a very real threat that companies of all types have to deal with. It’s not just Apple protecting their research and development team from leaks, we’ve seen how data breaches can cause software companies harm. Look at how emulators are now piecing together one of the biggest video games using stolen code for a platform it wasn’t designed for.
Resolutions could involve implementing strict confidentiality protocols for sensitive R&D information and protecting them fiercely. Or, you might become ultra-vigilant about securing patents, trademarks, and copyrights on your core assets too. You might even enlist specialized IP monitoring services to help sniff out infringements, unique watermarks on sensitive documents have been used to identify leakers quite rapidly.
These are just a few measures, but this, alongside good cybersecurity protocols, can genuinely make a reliable difference, or at least help you prosecute leakers or those with nefarious intent.
With this advice, you’ll be certain to help mitigate business risks. As we outlined in this post, you cannot be free of risk from every angle. After all, this post is hardly an exhaustive list of every problem that could impact your firm. It’s hard to imagine any risk mitigation guide written before 2020 assumed that a global pandemic would come to light in such a short amount of time.
At the very least, you’ll be in the mindset of preparation, of limiting issues that could go wrong and developing a better, more robust perspective for the future. At the very least, learning from the impact you do suffer will never be a bad idea.
