5 Key Risk Factors to Minimize When Launching Your Business
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It is a well-known fact that it is a risky business to be a small business owner or an entrepreneur, and investors and financial institutions always mention the questions about reducing the risk. And while it may be scary to take that leap of faith, starting new business is significantly less intimidating once you understand and assess these risks.
Let’s take a look at the list of 5 key risk drivers that every small business owner should evaluate and minimize in starting a business:
- Financial risk
There is a limited number of businesses that can be started without money. Cash flow is one of the biggest concerns at the start. You must evaluate where cash flow will come from to maintain operations, pay employees, and invest in market penetration and growth. Your business plan should be realistic about how much cash will be required to break-even, and how big the return on investment will be for in the first five-year horizon. Planium Pro Finance module represents a streamlined and easy tool to prepare a comprehensive financial forecasting and calculates all the relevant key ratios that can help you to assess your financial situation.
Economic conditions play an instrumental role in assessing the risk. A serious recession can damage even the most prosperous of businesses and are able to force a small organization to close its business. It might be beneficial to take a look at the current and future climate and prepare the organization.
- Strategic risk
It is difficult to gauge a roadmap of a business when it is brand new. There could be some not documented and not formalised decision-making processes in place, and each stage of the business life cycle comes with its own challenges. Any small business and startup need to set its ideal structure, target market, sales and marketing strategy, production strategy, and financials.
The ever-changing market conditions and environment is also a risk for businesses, such as new competitors may come into play and start offering a similar product or service. Technology can shift, presenting a new opportunity or rendering a current process obsolete. New regulations may force you to change the way you run your business.
To address this risk, a business owner must simply prepare for it through research and planning. It is recommended to make a list of risks and prioritize them, then think of the ways and action points to mitigate each risk. Conduct research based on industry trends, your competitors, and prior experience.
Constantly work towards improvement by verifying this list at least one a year to ensure you are on track and that the list is current and accurate. With Planium Pro ‘Risk Analysis’ you can structure all possible risks so that mitigation strategies can be put in place.
- Compliance (Regulatory) risk
Businesses are regulated and guided by an array of legislation and rules, both compulsory and voluntary. Some will be unique to your organisation, industry or sector, others will be more general across business, such as retail, food, and health. The risks to fail the compliance can be severe, including legal action, fines, penalties and even closure. Moreover, failing to fulfil your responsibilities is likely to damage your reputation. As for rewards, compliance is a way to show your customers how you care for their needs and improve your service.
- Physical risk
Physical risks encompass dangers that pose a threat to physical assets, such as buildings, equipment and people. They could be events such as fire, flooding, or crimes like theft and vandalism. Physical damage can present a risk to your business in a number of ways, starting from time costs and repair costs, to legal action and reputational harm if you have failed to insure against the risks appropriately.
- Operational risk
Operational, or human, risks involve daily running of your organisation – from human mistake or inappropriate staff behaviour, to systems failure and fraud, potentially resulting in lost time and revenue and even reputational damage. Be aware that staff behaviour can impact your business anytime, outside work and in, both positively and negatively.
Planium Pro can take the pressure of any business who experience planning, forecasting and analysis issues— whether you need a financial forecast, risk analysis or structure of your routine processes. Register to get the 14-day Free Trial to see the benefits of using Planium Pro.
