Identifying Business Risks
Starting and running a business is not without risk, so it’s important you know how to spot and manage risks successfully.
Some risks are internal to your business, such as how you finance and run your business. Other risks, such as changes to business regulations or an economic downturn, are external. You might decide that some risks are worth taking. For instance, you might invest in developing a new product or service to take your business forward.
In this guide, we will explore some of the main business risks, along with the steps you can take to protect your business.
What are the main risks to your business?
Here are some of the main risks to your business:
The economy is constantly changing, which can create both opportunities and risks for your business. For example, would an economic downturn have an effect on your customer numbers, or make them buy from you less often?
It’s important to keep up to date with the wider economic developments that could impact your business. That way you’ll be able to plan for any potential downturn and put safeguards in place to protect your business.
You’ll need to understand and comply with a range of business rules and regulations. Some of the rules, such as health and safety, will apply to almost all businesses. Others will depend on your business activities and sector. If you don’t comply with these various regulations, your business could face significant fines and penalties.
To minimise the risks to your business, you should:
- Take steps to understand your health and safety duties.
- Identify any other legal duties you need to comply with, such as data protection rules and employment law.
- Keep up to date with changes to business rules and regulations.
- Make sure you have any trading licenses you need.
- Make sure you haven’t illegally used someone else’s idea without realising it.
- Protect your business idea and intellectual property.
The number of cyberattacks reported by small businesses has increased significantly. A cyberattack can affect your business’s ability to operate, and lead to a loss of income and reputational damage. Common risks include phishing attacks, data breaches and denial of service attacks that prevent you from accessing your systems and services.
However, there are lots of practical steps you can take to protect your business from online threats. This will make your business more resilient and less likely to become the victim of a cybercrime.
It’s important to keep your customers, suppliers and partners happy. Unhappy customers and negative publicity can impact your reputation, which ultimately can affect your sales and profitability. Social media and the ability to post online reviews means that just one bad customer review can have a significant impact on your reputation.
The risks facing your business can and do change. It’s important to regularly review internal and external risks. That way you’ll be able to spot any potential issues and deal with them more quickly.
Writing a business plan is a great way to set targets, plan for the future and outline a strategy for your business. However, things can change quickly and your strategy can become less effective. For instance, technological changes, a new competitor entering the market, and changes in consumer demand can all impact your business strategy.
It’s vital to review your business plan and strategy regularly. That way you’ll be able to predict future pitfalls or risks, and work out how to avoid them. Without an up-to-date business plan, it can be harder to stay on track and make informed business decisions.
Your business can experience an unexpected event that makes it difficult to operate normally, such as a flood, fire or loss of key personnel. Operational risks can affect your business’s reputation, as well as your relationship with customers. They can also cost you time and money to deal with.
An increase in competition in your market could result in a loss of customers. For instance, your customers might switch to a competitor who has launched an effective new marketing campaign. You need to monitor your competitors and consider how their activities might impact your business.
Financial management and cash flow
Effective cash flow management is crucial to the success of your business. However, managing cash flow can be a challenge for many small businesses, and there are lots of reasons why your business may face a cash crisis. For instance, do your customers regularly pay their invoices late? Or are you overly reliant on a couple of large customers? It’s vital to pinpoint the factors that can cause cash flow problems, and take steps to avoid running into trouble.
How can you protect your business?
Whether you are a new startup or an established business, it’s important to carry out market research. This will help you understand more about your chosen market sector, potential customers and competitors. Market research will also help you keep track of your competitors. The more research you do, the stronger your position will be when making future business decisions.
Take out business insurance
Business insurance can help protect you and your business from everyday risks, such as accidental damage, flood, theft and legal costs. It’s essential to consider all the risks your business may face and take out appropriate insurance cover. Some types of business insurance are required by law, while others are just sensible to have depending on your business activities.
Prepare a business continuity plan
A business continuity plan is essential to help you prepare for any serious incident or emergency that could prevent your business from operating normally, such as:
- A data breach.
- Theft of equipment of stock.
- Loss of key staff.
- Failure of IT systems.
- Problems caused by extreme weather conditions.
If you have a continuity plan in place, you’ll be better prepared to cope in a crisis and should be able to minimise disruption to your business and your customers. A plan will also help increase resilience within your business, as well as protect your interests, brand and reputation.
Hints and tips
- Risk is part of doing business. However, there are lots of practical steps to protect your business.
- The risks facing your business can and do change. It’s important to regularly review internal and external risks. That way you’ll be able to spot any potential issues and deal with them more quickly.
- It’s important to protect your business by taking out insurance. Some insurers offer commercial insurance packages that include a range of cover. The packages can often be tailored to the needs of your business.
DISCLAIMER While all reasonable efforts have been made, the publisher makes no warranties that this information is accurate and up-to-date and will not be responsible for any errors or omissions in the information nor any consequences of any errors or omissions. Professional advice should be sought where appropriate.
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