So you’ve already started your small business, awesome work. Now, what happens if something goes wrong?
Do you have a risk management strategy in place? If not, consider this.
What if you get an unforeseen illness and are incapacitated for the next month? What if there’s a problem with that brand new product you’ve just manufactured that makes the first batch unsalable?
Business management is a precarious pastime—all manner of things can and often do go wrong. This is especially true for newly established companies.
There are no proven ways to make sure nothing bad happens to your business at all, but there are strategies to prevent serious problems. This is what’s known as a risk management strategy. It might just be the difference between your business being a major player in 5 years or going bust within 5 weeks.
Read on to learn how to develop one of your own.
What Is a Risk Management Strategy?
A risk management strategy is an approach that identifies and evaluates risks your business could face. Crucially, it then helps you to prepare for these potential risks, negating the impact of potential problems as much as possible.
They are a featured part of numerous different businesses, as well as other organizations like universities. Wherever there are business risks, a risk management strategy is an essential part of starting up—unless you want your lack of a plan to come back to haunt you in the future.
In general, you want to create a strategy that consists of three key stages. These are identification, assessment, and evaluation.
How Do I Create a Risk Management Strategy?
First, you need to identify any risks your business could face. This could be use-by dates in a restaurant’s stock not lasting long enough or the shipping costs on your products being too high.
Then, you must assess these risks. This is similar to a health and safety risk assessment. However, instead of looking at how things could harm an individual, you’re looking at how they could harm your company.
Think about how likely the risk is to happen. Also, consider how big of an impact it could have if it does happen. Finally, consider whether it could snowball into causing other risks to occur.
Once you’ve assessed your risks you must evaluate them, meaning you need to think of solutions or prevention measures for every risk. A risk management strategy can’t be done overnight. It’s a comprehensive model that could determine the success of your company moving forward.
Like having a well-thought-out business plan, it can provide a framework of reference for you in the early stages of your start-up.
Not only should this be done when you first start a company, but a risk management strategy should also ideally be reviewed annually. This is in case any new risks to your company arise that you’re not prepared for because you haven’t taken the time to identify them.
How Can I Prevent Risks?
You can’t prevent all risks, but the purpose of a strategy is to make sure you’re prepared if they do happen. It also ensures you have taken measures to prevent them where possible.
The first decision to be made is who is going to conduct your risk management strategy, be it yourself, an employee or an external company. As with the nature of risk management, some risks are taken with each of these options!
For expert advice, some companies specialize in risk management. For example, Vested Risk Strategies are a company dedicated to building risk strategies for businesses.
Since starting a business comes with so many important aspects, it can often be wise to outsource your strategy to a company like the above.
There are some well-known prevention strategies and types of risk management you could use if you create a strategy yourself.
One is known as avoidance: if you know one of your products could malfunction, you can avoid selling the product altogether. The issue with this is that, though it eliminates the risk, it also means you forfeit any profit that could’ve been made by taking the risk.
It’s usually advisable to apply reduction or sharing instead of avoiding the problem altogether. “Reduction” is making a conscious effort to reduce the impact a particular risk could have on your company. “Sharing” is a manner of spreading risks across several aspects of a business to soften its impact.
On the opposite end of the spectrum to avoidance, you can choose to retain a risk entirely. This means the risk can no longer cause a surprising impact on the business, as you’ve already allowed it to affect your company.
Much like with avoidance, this is only advisable in certain circumstances. Usually, it’s where the risk can be mitigated elsewhere or the loss to the company isn’t severe.
How Important Is a Risk Management Strategy to My Business?
In short, it’s extremely important. A thorough strategy can set you up in the best possible way to efficiently establish your new company, or continue to expand your existing one.
It removes any doubts or concerns in the running of your business. This is because every risk should already have been accounted for in your strategy.
Without a thorough strategy, it can be hard to plan far into the future, as you’ve not acknowledged what to be wary of in your business or what to focus on. The only real con of a risk management strategy is that the risks you’ve identified don’t happen, meaning you’ve wasted your time.
Even so, the time still isn’t wasted. It was used to research and get to grips with your business, as well as to understand what is likely to work and what isn’t.
When Should I Create a Risk Management Strategy?
If you haven’t created one already for your business, then now is the best time to start.
For new business owners, it’s essential to plan for risks before making a large investment. For existing companies, creating this strategy now will better prepare them for trading in the years ahead.
This guide should have shown you where to start with your risk management strategy. Get out there and start identifying any risks to your business today. For more business advice, make sure to read the other articles on our site.