Assessing Risk in your business

Being aware of what risks your business could face allows you to plan to mitigate them.

A risk assessment plan is a “what if…” exercise. You need to:

  • Identify what could happen to or in your business.
  • What would the impact be if it did?
  • How likely is it to happen?
  • Can it be reduced or eliminated?
  • Do you need to get insurance in case it happens?

We undertook a disaster recovery plan a couple of years ago. The whole team sat down and discussed what we would do if a disaster happened, what we expected of each other, how we would communicate, and whose job is it to get us up and running again and in what time frame. It was an interesting exercise and sort of funny. And when we had the quakes in Wellington a bit later we were all prepared; we were almost disappointed that we only had a filing cabinet fall over.

Most risks are not that dramatic. It’s far more likely that a business interruption actually comes as someone burning their lunch and setting off the sprinklers and destroying the computer system.

Any good insurance advisor will be able to walk you through a risk assessment plan for both material damage and business interruption.

We know a few good people so let us know if you’d like to be pointed in their direction.

The more subtle risks I mentioned in my last blog require building a strong sustainable business to mitigate.
Doing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis helps. As does having a plan, establishing policies and procedures, keeping up to date with your market and keeping your team healthy and engaged.

If you’d like help with undertaking this planning give us a call.

What is Business Risk?

Business Risk is defined by Wikipedia as uncertainty in profits or the danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes a business to fail.

Business risks fall into several categories:

Strategic Risk – your market or environment changes drastically e.g. a big competitor comes into your market or you don’t keep up to date with technology changes and your customer moves on.

Compliance Risk – failure to comply with legislation, regulation and/or standards. For example the new Health & Safety Regulations will mean more compliance; failure to follow these could lead to fines.

Operational Risk – a failure in one of your day to day operations. Either technical, like your server dying, or people or process driven, like no one checking payments and an extra zero added onto a payment.

Financial Risk – refers to the cash flowing through your business. Like reliance too much on one supplier, who goes under owing you money?

Reputational Risk – negative publicity about your product or service could cause customers to desert you.

We can all picture the big externally driven physical risks to our business. Someone burning our building down, an earthquake destroying our town. Or even internal, theft by an employee. These are relatively easy to quantify, plan and insure for.

But some risks are more subtle, particularly for small businesses.

  • What happens if the owner or a key employee gets hit by the proverbial bus and can’t turn up to work for a few months, will the business be able to continue?
  • If your plan is to sell your business to fund your retirement, what’s the risk if that doesn’t work out? How do you ensure it will?
  • Negative cash flow leading to financial collapse.
  • High staff turnover, or in reverse an aging or out of date workforce.

Planning, spreading risk and, where need be, insuring are essential for all businesses. Too often we’re too busy working and wrapped up in our business to plan and set up safe-guards. That’s risky!