Risk is a given in any business and it may be damaging to a business and even threatens its survival. It is therefore essential to be aware of the assorted risks, to understand its potential impact on a business and to know how to handle it effectively. This article gives some practical guidelines on easy methods to minimise risk. The dialogue is finished under the following headings:

Planning;

Relationships;

Hedging;

Discipline.

Planning

Detail planning goes a long way in reducing risk. Planning ought to embrace the next:

Feasibility studies. It is important to verify the viability of a new venture by a proper feasibility study.

Business planning. A marketing strategy offers the detail of how, when and by whom the strategic goals will be achieved.

Moneyflow projections. Too many businesses go under because of cashflow problems that would have been prevented. It is essential to plan for anticipated cash in- and outflows and the timings thereof.

Financial planning. Good monetary planning covers many things including projected administration accounts and the undermendacity ratios. Pre-emptive statement and correction of any potential profitability-, liquidity and solvency problems reduce the risk of running into monetary troubles.

Project planning. Any substantial ad-hoc project in a company is often handled more efficiently by means of proper project management. This includes mergers and acquisitions, new product launches and growth into new territories.

Relationships

When corporations evaluate risks they usually neglect concerning the human element. This is probably one of the vital fatal risk factors. Relationships should be nurtured. Particular relationships which are necessary embrace the next:

Suppliers. Good relationships with suppliers are just as vital as with any other stakeholder in a business. It makes business sense to barter good credit phrases with suppliers and to pay them as late as potential, however as soon as an agreement is in place commitments must be honoured.

Customers. Prospects ought to always receive glorious service and be handled pretty and with respect. A large proportion of business normally emanates from existing clients. A particular bad follow is to try and make a quick buck out of a consumer by very high margins.

Employees. Companies often pay lip service as far as the significance of their staff are concerned. Confidentiality agreements and restraints of trade can reduce some risk of sad or dishonest personnel, but it can never be as effective as a crew of loyal and motivated employees.

Financiers. Transparency and information is essential for buyers and bankers. Nobody likes to be blindsided or to get disagreeable surprises. To deliver more than what’s promised is also a good practice. In difficult times financing can imply survival.

Other Stakeholders. Relationships with all other stakeholders must also be kept in place. This may be the local authorities, governing bodies in the industry, service providers and others.

Hedging

The essence of hedging is to bypass a potential negative effect in business by means of an action, product, etc. Hedging is typical in the monetary domain, but by working cleverly it may also be achieved (to a sure extent) on an operational level. Among the ways to hedge the operations of a enterprise are given under:

Suppliers. To have back-up suppliers (particularly for critical products, raw materials and services) is a good practice. This keeps a company from being held ransom by an un-cooperative or out-of-stock supplier.

Products. Any firm should continually add new products to its offering. To depend on only a number of good products might be very risky.

Manufacturing. It is worthwhile to consider completely different manufacturing plants (if the scale of the business justify it). The risk on the business because of factors akin to natural disasters and labour disputes is thereby reduced.

Distribution. Back-up warehousing facilities and distribution channels are advisable.

Customers. We’ve seen profitable companies that had critical problems after they lost their biggest customers. Customer risk can substantially be reduced by way of having many (and constant) customers.

Geography. Political or economic instability in a country will be very harmful for the companies that operate there. Wherever attainable it is advisable to spread the risk over many geographical areas.

Seasonality. Product- and repair offerings that cater for numerous seasons have a really positive effect on cashflows and minimise the potential risks related with it.

ICT. Only a few companies can survive without proper information and communication technology. Back-up procedures and of-site facilities reduce the potential risk.

Financial. Monetary risk administration may be very prevalent in massive worldwide businesses. Should you sell your products within the international arena there are lots of products available to hedge the various risks. Risks that must be catered for embody currency, interest rate and commodity price risks.

Discipline

Discipline can reduce risks in all facet of business. Discipline should apply to all facets mentioned above as well as to the following:

Expenditure. Expenses must be kept under management -particularly in occasions of affluence.

Debt. Debt assists a business to grow. A business with too much debt is, nonetheless, very vulnerable for liquidation in adverse conditions.

Moneyflow. A lack of adequate moneyflow is a potentially deadly enterprise risk. Moneyflows ought to be managed diligently.

Growth. Business development requires additional working capital. Uncontrolled progress can lead to monetary distress and even bankruptcy and must be avoided.

Abstract

Risk in business is a reality. When these risks are efficiently managed the rewards will be substantial. If not, a enterprise can run into serious problems and even collapse. It is unnecessary (and stupid) to disregard risks. By adhering to a couple fundamental principles these risks will be reduced drastically.

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