Risk is a given in any business and it can be damaging to a business and even threatens its survival. It is therefore essential to be aware of the various risks, to understand its potential impact on a business and to know how to manage it effectively. This article gives some tips on how to minimise risk:
- The product and service offering of a business needs to change with the preferences of customers. Too much reliance on a single product (or a few products) should also be avoided.
- It is advisable to have alternative supply chains (including suppliers and distribution channels). Good relationships must be built with all the relevant parties.
- Debt assists companies to grow. It can, however, be dangerous to have too much debt and it should be limited to serviceable levels.
- Reliance on one or a small number of customers can be very risky and wherever possible it should be avoided.
- Proper financial planning must be done. Cash flow planning is one area that can highlight potential risks and pro-active action can then be taken.
- Financial management should continually be done. Ratio analysis will show where problem areas exist (e.g. in profitability). It also gives an indication of liquidity and solvency risks.
- It is advisable to hedge a business as far as possible against factors that are not under the control of the business. This is especially true with international trading and unexpected currency fluctuations.
- Business growth should be kept to sustainable levels. Too much growth can seriously drain financial resources and can even cause bankruptcy. Systems and skills also need to keep pace with growth.
- Proper standards in manufacturing should be adhered to. Products that are not on standard can damage the image of a company or even destroy it in total.
- People are the core of any business and they should be treated as such. People do, however, leave a business for various reasons. Where applicable sensitive information needs to be protected by confidentiality agreements and restraint of trade agreements.
Copyright© 2008 – Wim Venter