Risk is a given in any business and it will be damaging to a business and even threatens its survival. It’s therefore essential to be aware of the various risks, to understand its potential impact on a enterprise and to know the way to manage it effectively. This article gives some practical guidelines on how you can minimise risk. The dialogue is completed under the following headings:

Planning;

Relationships;

Hedging;

Discipline.

Planning

Element planning goes a long way in reducing risk. Planning ought to embrace the following:

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

Enterprise planning. A marketing strategy provides the element of how, when and by whom the strategic goals will be achieved.

Moneyflow projections. Too many companies go under due to cashflow problems that could have been prevented. It’s essential to plan for anticipated cash in- and outflows and the timings thereof.

Financial planning. Good financial planning covers many things together with projected administration accounts and the underlying ratios. Pre-emptive remark and correction of any potential profitability-, liquidity and solvency problems reduce the risk of running into financial troubles.

Project planning. Any substantial ad-hoc project in a company is generally handled more effectively through proper project management. This includes mergers and acquisitions, new product launches and growth into new territories.

Relationships

When corporations consider risks they often overlook concerning the human element. This is potentially one of the crucial deadly risk factors. Relationships ought to be nurtured. Specific relationships that are important include the following:

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

Customers. Prospects should always obtain glorious service and be handled fairly and with respect. A large proportion of enterprise normally emanates from existing clients. A selected bad observe is to try to make a quick buck out of a consumer through very high margins.

Employees. Companies usually pay lip service so far as the importance of their employees are concerned. Confidentiality agreements and restraints of trade can reduce some risk of unhappy or dishonest personnel, but it can by no means be as efficient as a team of loyal and motivated employees.

Financiers. Transparency and information is essential for investors and bankers. Nobody likes to be blindsided or to get disagreeable surprises. To deliver more than what’s promised can be a great practice. In tough instances financing can imply survival.

Other Stakeholders. Relationships with all other stakeholders should also be kept in place. This could be the native government, governing our bodies within the trade, service providers and others.

Hedging

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

Suppliers. To have back-up suppliers (particularly for critical products, raw material and providers) is an effective practice. This keeps an organization from being held ransom by an un-cooperative or out-of-stock supplier.

Products. Any firm ought to regularly add new products to its offering. To depend on only just a few good products could be very risky.

Manufacturing. It is worthwhile to consider totally different manufacturing plants (if the scale of the enterprise justify it). The risk on the business as a result of factors equivalent to natural disasters and labour disputes is thereby reduced.

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

Customers. We have seen successful firms that had critical problems after they lost their biggest customers. Customer risk can considerably be reduced by means of having many (and loyal) customers.

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

Seasonality. Product- and repair choices that cater for various seasons have a very positive effect on cashflows and minimise the potential risks associated 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 large international businesses. When you sell your products within the international area there are various products available to hedge the varied risks. Risks that have to be catered for embody currency, interest rate and commodity value risks.

Self-discipline

Self-discipline can reduce risks in all aspect of business. Self-discipline should apply to all aspects mentioned above as well as to the next:

Expenditure. Bills should be kept under management -especially in instances of affluence.

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

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

Growth. Business growth requires additional working capital. Uncontrolled development can lead to financial misery and even bankruptcy and should be avoided.

Abstract

Risk in enterprise is a reality. When these risks are successfully managed the rewards could be substantial. If not, a business can run into severe problems and even collapse. It’s unnecessary (and silly) to disregard risks. By adhering to a few primary ideas these risks might be reduced drastically.

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