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How to Manage Your Key Business Risks
By bpjames | October 5, 2009
It is vital to be in control of the major risk factors that exist in your business. The biggest risk to all businesses is running out of cash and is by far the most common reason for business failure. The simple answer is - don’t run out of cash! Don’t be caught out by lack of financial planning or not having the necessary controls in place. How do you ensure this is managed effectively? With diligence and the appropriate systems in place you can minimise such risks.
Let’s just examine some of the obvious daily cash requirements for your business. You will have
overheads to pay, suppliers to satisfy, taxes and bank interest/charges to meet plus possibly rent and wages to pay. It is a good idea to set some smart objectives regarding your current and future cash needs to meet all these requirements when they arise.
It takes careful planning to consider all the cash needs for your business and in doing so meet your fixed costs, your personal lifestyle needs (the income levels you need from the business) a contingency fund (financial reserve) and the cash implications of your ultimate goal for the business. (For example, your goal might be to exit your business with a specified sum of cash and/or retirement income level). This requires short, medium and long-term planning and forecasting.
Here is a recommended list of the different financial aspects you might want to monitor on a regular basis and in many cases daily:
- Accurate invoicing (To ensure you include all chargeable aspects of your work)
- Payments received from customers and other debtors
- Money paid out to suppliers and for other expenses
- Money invested in equipment, plant and machinery
- Money held in items of stock
- Money you owe to your creditors (Where possible always pay on time)
Managing cash is most important but is certainly not the only business risk having major financial and sustainability implications for your business. There are several aspects where you don’t have direct control. You do however have total control over how you plan effectively and how you respond to adversity.
External factors such as political, economical, social, technological, environmental and legal issues all play their part in shaping your operating environment. By being aware of current conditions and trends you can factor these in to your planning and anticipate the likely effects on your business. I refer to this as ‘business savvy’.
Some of the other major risks include fierce competitor activity, loss of staff or suppliers. These can be affected by sickness and injury. Apart from these ‘personnel’ risks there are operational risks such as fire, flood, theft, criminal damage and terrorism. One increasingly fundamental risk relates to IT and data loss/corruption. Regular back-ups help to minimise this risk. As for the others, these can be minimised or protected with the highest levels of quality, due diligence and appropriate insurances in place.
With the correct systems in place you can keep your ‘finger on the pulse’ of your business daily. This can be achieved by monitoring key performance indicators. For example, sales volumes, payments in/out, new customer acquisitions, customer complaints, supplies in stock and production levels.
By maintaining effective controls and upholding the highest levels of ethics in all your business dealings you are able to keep the risks to a minimum. This will give you peace-of-mind and allow you to focus on the important task of growing and developing your business rather than just sustaining it.
Brian.
Topics: Profitability, Strategic planning, Systemisation |
October 5th, 2009 at 10:43 am
A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks