Risk is a given in any enterprise and it will be damaging to a enterprise and even threatens its survival. It’s 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 provides some practical guidelines on how one can minimise risk. The dialogue is done under the following headings:
Planning;
Relationships;
Hedging;
Discipline.
Planning
Detail planning goes an extended way in reducing risk. Planning ought to embody the following:
Feasibility studies. It is very important confirm the viability of a new venture via a proper feasibility study.
Enterprise planning. A business plan offers the element of how, when and by whom the strategic goals will be achieved.
Moneyflow projections. Too many companies go under due to cashflow problems that would have been prevented. It’s essential to plan for anticipated money in- and outflows and the timings thereof.
Financial planning. Good financial planning covers many things including projected administration accounts and the underlying ratios. Pre-emptive observation and correction of any potential profitability-, liquidity and solvency problems reduce the risk of running into financial troubles.
Project planning. Any substantial ad-hoc project in a company is often handled more efficiently by proper project management. This consists of mergers and acquisitions, new product launches and expansion into new territories.
Relationships
When companies consider risks they often neglect about the human element. This is doubtlessly one of the most deadly risk factors. Relationships should be nurtured. Particular relationships which are essential embrace the next:
Suppliers. Good relationships with suppliers are just as essential as with any other stakeholder in a business. It makes business sense to barter good credit phrases with suppliers and to pay them as late as attainable, but once an agreement is in place commitments need to be honoured.
Customers. Clients should always receive glorious service and be handled pretty and with respect. A big proportion of business usually emanates from existing clients. A particular bad practice is to attempt to make a quick buck out of a consumer by very high margins.
Employees. Companies typically pay lip service as far as the significance of their staff are concerned. Confidentiality agreements and restraints of trade can reduce some risk of unhappy or dishonest personnel, but it can never be as efficient as a staff of loyal and motivated employees.
Financiers. Transparency and information is essential for buyers and bankers. Nobody likes to be blindsided or to get unpleasant surprises. To deliver more than what’s promised can also be a great practice. In difficult instances financing can mean survival.
Different Stakeholders. Relationships with all other stakeholders also needs to be kept in place. This can be the local government, governing bodies within the trade, service providers and others.
Hedging
The essence of hedging is to avoid a possible negative effect in business by means of an motion, product, etc. Hedging is typical within the financial domain, however by working cleverly it may also be achieved (to a certain extent) on an operational level. Among the ways to hedge the operations of a business are given beneath:
Suppliers. To have back-up suppliers (especially for critical products, raw materials and companies) is a good practice. This keeps a company from being held ransom by an un-cooperative or out-of-stock supplier.
Products. Any firm ought to frequently add new products to its offering. To rely on only a few good products can be very risky.
Manufacturing. It’s worthwhile to consider different manufacturing plants (if the dimensions of the enterprise justify it). The risk on the enterprise due to factors reminiscent of natural disasters and labour disputes is thereby reduced.
Distribution. Back-up warehousing facilities and distribution channels are advisable.
Customers. We’ve seen profitable corporations that had critical problems after they lost their biggest customers. Buyer risk can considerably be reduced by having many (and dependable) customers.
Geography. Political or economic instability in a country could be very dangerous for the businesses that operate there. Wherever possible it is advisable to spread the risk over many geographical areas.
Seasonality. Product- and service choices that cater for varied seasons have a very positive impact on moneyflows and minimise the potential risks related with it.
ICT. Very few firms can survive without proper information and communication technology. Back-up procedures and of-site facilities reduce the potential risk.
Financial. Monetary risk administration is very prevalent in large worldwide businesses. In case you sell your products in the international enviornment there are many products available to hedge the varied risks. Risks that should be catered for embrace currency, curiosity rate and commodity worth risks.
Discipline
Self-discipline can reduce risks in all aspect of business. Self-discipline ought to apply to all features mentioned above as well as to the following:
Expenditure. Expenses ought to be kept under management -especially in instances of affluence.
Debt. Debt assists a business to grow. A business with too much debt is, however, very vulnerable for liquidation in adverse conditions.
Moneyflow. A lack of sufficient moneyflow is a doubtlessly fatal business risk. Cashflows must be managed diligently.
Growth. Business development requires additional working capital. Uncontrolled progress can lead to monetary misery and even bankruptcy and ought to be avoided.
Abstract
Risk in enterprise is a reality. When these risks are efficiently managed the rewards may be substantial. If not, a enterprise can run into severe problems and even collapse. It’s unnecessary (and stupid) to disregard risks. By adhering to some basic rules these risks could be reduced drastically.
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