<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=349935452247528&amp;ev=PageView&amp;noscript=1">
Search
word-map-thumb

The Alternative Board Blog

Know the Fundamentals of Risk Mitigation for Your Business

May. 25, 2016 | Posted by The Alternative Board
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

Related posts

Email Marketing in the Age of COVID-19
Oct. 22, 2020 | Posted by The Alternative Board
In spite of all the changes rocking the business landscape, experts agree that email marketing remains a consistently effective way of reaching customers. In part, this is because companies can...
7 Ways to Market your Business for Next to Nothing
Sep. 11, 2020 | Posted by The Alternative Board
Marketing need not be a mystery or expensive. For many business owners who are tightening their belts and reducing expenses, marketing expenditures are often the first to get trimmed. The truth is,...
How to Prepare Your Clients for a Price Increase
Sep. 3, 2020 | Posted by The Alternative Board
Every business must, at one point or another, share what’s viewed by customers as “unwelcome” news—the need for a price increase for products or services. Some businesses simply set the wheels in...
How TAB Helped A Member Grow During COVID-19
Sep. 1, 2020 | Posted by Phil Spensieri
Since the start of the COVID-19 pandemic, many businesses have struggled to survive. But for some, the pandemic has provided an opportunity to thrive. Garden Connections is one of those businesses. ...
The best piece of business advice I have ever received is…
Aug. 28, 2020 | Posted by The Alternative Board
When you’re a business owner, your best lessons often come from two places: failure or wise words from owners who have been there. There are going to be inevitable ups and downs in every enterprise....
10 Creative and Often Overlooked Ways to Find Hidden Money in Your Business
Jul. 16, 2020 | Posted by The Alternative Board
With the strains of rolling shutdowns across the country, many businesses are finding their profits diminished or uncertain. Many leaders are relying on tried and true revenue generating strategies...
9 Tips to Help Create a Living Company Culture in a Virtual Workplace
Jun. 26, 2020 | Posted by The Alternative Board
As businesses around the world have gone virtual, digital tools have helped keep most aspects of our work life functioning. Many businesses are reporting increases in productivity, with activities...
How to Improve Diversity in the Workplace
Jun. 9, 2020 | Posted by The Alternative Board
The U.S. is going through some challenging times right now, but a growing awareness of the value of diversity in business may prove to be of long-lasting value for us all. Though the future is...
Time for a Closer Look – Assess Your Business Practices For The New Normal
Jun. 3, 2020 | Posted by Phil Spensieri
For most, if not all, business owners COVID-19 has proven to be their biggest challenge yet. During the last couple of months, I’ve witnessed, firsthand, the resilience of many business owners...
Help Customers Stay Connected and Loyal to Your Business
May. 20, 2020 | Posted by The Alternative Board
Small businesses have always been challenged to attract and retain a loyal customer base. This challenge has been intensified a thousand times over because of the Coronavirus outbreak. Whatever their...