<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=290086984736480&amp;ev=PageView&amp;noscript=1">
word-map-thumb

The Alternative Board Blog

Know the Fundamentals of Risk Mitigation for Your Business

May. 25, 2016 | Posted by The Alternative Board Worldwide
Board-Meeting-iStock-Small-1024x683

How much business risk is acceptable? How much is too much risk?

Every entrepreneur faces risks of some kind, whether they’re jump-starting a new business or assuming leadership of an established company. But CEOs and business leaders don’t always consider the scary variety of risks they might have to contend with (at least in theory) at some point in their business’s evolution:

  • Product malfunctions
  • Disasters and business interruption
  • Injuries to customers or employees
  • Breach of data security
  • Unanticipated property loss
  • Employee theft and embezzlement
  • Violation of state and federal regulations

Entrepreneurs are by nature an optimistic group and don’t want to spend a lot of time contemplating these worst-case scenarios. On the other hand, ignoring such eventualities or failing to adequately prepare for them aren’t viable strategies for ongoing growth. It’s imperative to fully understand the potential risks to your business and to mitigate them wherever possible.

Here are key considerations to keep in mind when assessing the scope and depth of potential threats to your business:

Understand the concept of risk management. Simply put, “risk management” means recognizing the likelihood that, at some point, your business will encounter unexpected circumstances with significant negative consequences. (This can also apply to unexpected growth opportunities, and understanding the inherent risks that come with those opportunities.)

The goal is to identify what form those risks are likely to take, given your specific industry and the marketplace in general, and devising strategies to lessen the negative effects.

Limit your liability. First and foremost is protecting your personal liability. For many entrepreneurs, this means switching from sole proprietorship (where you’re responsible for anything that goes wrong) to a corporation or limited liability company, where your responsibility is more limited, but your key business assets are secure and protected.

Want additional insight? Read 4 Step Guide to Strategic Planning now to learn more

DOWNLOAD

Maintain a strict separation between business and personal records. Whenever one’s personal life spills over into one’s business affairs, trouble can occur. It’s critically important to keep your personal finances and property apart from the business, so they’re not considered part of your business liability—and therefore at risk to be lost at a later time. Most entrepreneurs establish records relating to finances, budgets and taxes in both their personal lives and as business owners or leaders. These areas should never overlap.

Create contingency plans. Once you’ve identified possible risks, it’s time to create contingency plans focused on a rapid response to specific threats and ways to keep business operations running as smoothly as possible. Get into “What if?” mode. For example, if your biggest client walked away tomorrow, how would you handle the situation?

Again, the same risk-management concept applies to potentially favorable opportunities. What are the benefits and risks involved, for example, in hiring a talented new CFO? What about authorizing the launch of a key product upgrade? Develop a way to assess the risk-reward ratio of your actions, so as to minimize surprises later on.

Explore your insurance options. While they may sometimes be costly, obtaining the right insurance policies can protect you against a wide range of threats, including damage from catastrophic weather events or employee lawsuits. Look closely at insurance your options and determine if and when transferring some of the big risks of business ownership make the best sense for your company.

Implement strict control and reporting systems. As sometimes happens in family-owned businesses, a company can grow in size and levels of bureaucracy, but never develop a system to identify who can make and/or authorize particular decisions. In such a void, problems are always brewing.

This is equally true when no one knows who reports to whom, and under what circumstances. These areas of risk must be addressed, for the benefit of everyone concerned.

Other preventive measures should also be considered, such as implementing stronger workplace safety regulations, instituting a quality assurance program, and closely monitoring outstanding loans and financing issues. Most importantly, business leaders need to adopt a risk mentality. It’s may be too simplistic to say anything that can go wrong will go wrong, but as any seasoned entrepreneur will tell you, it’s better to see what’s coming than to pretend it can’t happen to you.

Read our 19 Reasons You Need a Business Owner Advisory Board

DOWNLOAD

Written by The Alternative Board Worldwide

Related posts

Developing The Art Of Time Management
Feb. 19, 2019 | Posted by Phil Spensieri, TAB York Region
Although many of you are fantastic managers of your employees and operations, the issue of good time management is almost always a part of every discussion I have with business owners. Good time...
What Habits Can Cripple a Leader’s Productivity
Feb. 19, 2019 | Posted by The Alternative Board Worldwide
With all the attention given to boosting employee productivity, it’s sometimes easy to lose sight of the same urgency for business owners or CEOs and their executive teams. Ask yourself: are you’re...
5 Tips on Reducing Workplace Distractions
Feb. 12, 2019 | Posted by The Alternative Board Worldwide
These days, employees are faced with an unprecedented onslaught of workplace distractions, chief among them all the apps and digital sideshows that now pervade everyone’s consciousness. No wonder...
Leadership Part II: Why be a Boss when you can be a Leader?
Feb. 6, 2019 | Posted by Phil Spensieri, TAB York Region
In my past 30 years of business I have met thousands of business owners and while all of them have been the ‘boss’, not all of them have been leaders. How to be a better leader is a topic that comes...
A Quick Guide to Hiring a High Performing Sales Team
Jan. 29, 2019 | Posted by The Alternative Board Worldwide
A quality salesperson is vital to sales team success This individual is responsible for generating leads and closing sales, which translates into revenue-generating activities for your organization....
5 Common Recruiting Mistakes and How to Avoid Them
Jan. 24, 2019 | Posted by The Alternative Board Worldwide
You don’t need us to tell you—the goal of hiring talented, qualified job candidates is now a lot harder to achieve than it once was. Businesses are pursuing a wide range of strategies in order to...
Management Skills Part 1: Transitioning from Employee to Manager
Jan. 22, 2019 | Posted by Phil Spensieri, TAB York Region
In my work with business owners, many of them have expressed a desire to transition a certain employee to a more senior role at their company. However, this promotion sometimes doesn’t happen because...
Leadership Tips in a Time of Rapid Business Growth
Jan. 22, 2019 | Posted by The Alternative Board Worldwide
Solid leadership is critical during every phase of a company’s evolution. This is probably most important during a time when a business undergoes a period of rapid growth. According to serial...
A Guide to Securing a Small Business Loan
Jan. 15, 2019 | Posted by The Alternative Board Worldwide
Start-ups and companies in early growth stages often need an infusion of cash to keep their businesses afloat. It’s also true that more established firms can benefit from a short-term loan in order...
5 Leadership Traits that are essential for Business Owners and CEOs
Jan. 3, 2019 | Posted by The Alternative Board Worldwide
Do successful business leaders and CEOs exhibit the same qualities across the board? Generally speaking, the answer is “yes.” Specific personality and character traits can be identified as essential...