<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.

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

How to Manage Your Mobile Workforce

Jul. 16, 2018 | Posted by The Alternative Board Worldwide
The American workforce is changing the nature of “work” as we once knew it. The days when employees absolutely had to work at a desk, in an office, are long gone. While many businesses still insist...

CEOs Save Time by Learning to Say “No”

Jul. 2, 2018 | Posted by The Alternative Board Worldwide
  Learn to Say No!    How many times in a day do people approach you or your gatekeeper with a request, suggestion or some other time-consuming appeal? Like many other business leaders, your first...

Save Time with Fewer (and More Productive) Meetings

Jul. 2, 2018 | Posted by The Alternative Board Worldwide
For most companies, there’s no way around having meetings as a way to conduct day-to-day business. At the same time, it’s hard to find any CEO or business owner who doesn’t experience frustration at...

Differentiating Between “Urgent” and “Important” Saves You Time

Jun. 29, 2018 | Posted by The Alternative Board Worldwide
Urgent? Or important? Take a moment to look back on what you did today in your role as business owner or CEO. How much time was spent reacting to an urgent issue or crisis someone brought to you,...

A Quick Guide to More Efficient CEO Time Management

Jun. 27, 2018 | Posted by The Alternative Board Worldwide
Most CEOs and business leaders understand on a gut level that there aren’t enough hours in the day to get everything done. They also know that time, (and the management of their time!), probably the...

The Right Feedback Can Boost Employee Retention

May. 29, 2018 | Posted by The Alternative Board Worldwide
Among the many skills a CEO or business owner should possess is the ability to provide constructive, meaningful feedback. Employees at every level of an organization want to do the best job possible,...

6 Tips on Turning Great Employees into Outstanding Leaders

May. 29, 2018 | Posted by The Alternative Board Worldwide
The current job market is so tight and competitive, why make it any more difficult to recruit and retain the right people for your company? Too many businesses focus on getting bodies into open...

Is “Emotional Marketing” the Best Way to Connect with Customers?

Apr. 24, 2018 | Posted by The Alternative Board Worldwide
According to the Small Business Association, “All humans feel four basic emotions: happy, sad, afraid/surprised, and angry/disgusted.” Of course, no business wants to spur feelings of disgust or...

5 Tips for Monitoring Your Competitor’s Marketing Strategy

Apr. 23, 2018 | Posted by The Alternative Board Worldwide
 No matter how unique their product or service, every business has a competitor (or more than one). This is probably a good thing because it means no CEO or business owner can become complacent or...

How to Motivate and Recognize Your Sales Team

Apr. 10, 2018 | Posted by The Alternative Board Worldwide
  Assembling a high-performing sales team is challenging enough, but that’s just the start of any focused sales effort. With quality salespeople in place, the next task is determining how best to ...