Risk is a given in any enterprise and it can be damaging to a enterprise and even threatens its survival. It is therefore essential to be aware of the various risks, to understand its potential impact on a enterprise and to know find out how to manage it effectively. This article provides some practical guidelines on how one can minimise risk. The dialogue is finished under the next headings:
Planning;
Relationships;
Hedging;
Discipline.
Planning
Element planning goes a long way in reducing risk. Planning should embody the next:
Feasibility studies. You will need to ascertain the viability of a new venture by a proper feasibility study.
Business planning. A marketing strategy gives the element of how, when and by whom the strategic goals will likely be achieved.
Cashflow projections. Too many businesses go under due to cashflow problems that would have been prevented. It is essential to plan for anticipated money in- and outflows and the timings thereof.
Financial planning. Good monetary planning covers many things together with projected management accounts and the underlying ratios. Pre-emptive remark 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 normally handled more effectively by means of 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 potentially one of the deadly risk factors. Relationships should be nurtured. Specific relationships which are vital include the next:
Suppliers. Good relationships with suppliers are just as necessary as with every other stakeholder in a business. It makes business sense to negotiate good credit phrases with suppliers and to pay them as late as potential, however once an agreement is in place commitments must be honoured.
Customers. Prospects should always receive wonderful service and be handled pretty and with respect. A large proportion of business normally emanates from existing clients. A selected bad practice is to try to make a quick buck out of a consumer by very high margins.
Employees. Corporations usually pay lip service as far as the importance of their workers 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 group of loyal and motivated employees.
Financiers. Transparency and knowledge is essential for buyers and bankers. Nobody likes to be blindsided or to get unpleasant surprises. To deliver more than what is promised is also an excellent practice. In troublesome instances financing can imply survival.
Different Stakeholders. Relationships with all different stakeholders must also be kept in place. This may be the local authorities, governing our bodies in the industry, service providers and others.
Hedging
The essence of hedging is to bypass a possible negative effect in business by way of an action, product, etc. Hedging is typical within the financial domain, but by working cleverly it will also be achieved (to a certain extent) on an operational level. Among the ways to hedge the operations of a business are given below:
Suppliers. To have back-up suppliers (particularly for critical products, raw materials and companies) is an effective practice. This keeps a company from being held ransom by an un-cooperative or out-of-stock supplier.
Products. Any firm should regularly add new products to its offering. To depend on only a number of good products may be very risky.
Manufacturing. It is worthwhile to consider completely different manufacturing plants (if the scale of the business justify it). The risk on the business attributable to factors akin to natural disasters and labour disputes is thereby reduced.
Distribution. Back-up warehousing facilities and distribution channels are advisable.
Customers. We’ve seen successful companies that had critical problems when they misplaced their biggest customers. Buyer risk can considerably be reduced via having many (and constant) customers.
Geography. Political or financial instability in a country may 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 repair offerings that cater for numerous seasons have a very positive effect on cashflows and minimise the potential risks associated with it.
ICT. Very few firms can survive without proper info and communication technology. Back-up procedures and of-site facilities reduce the potential risk.
Financial. Monetary risk management is very prevalent in massive international businesses. If you sell your products in the worldwide area there are lots of products available to hedge the varied risks. Risks that must be catered for embrace currency, curiosity rate and commodity price risks.
Discipline
Discipline can reduce risks in all aspect of business. Self-discipline ought to apply to all points discussed above as well as to the following:
Expenditure. Bills should be kept under control -especially in times of affluence.
Debt. Debt assists a enterprise to grow. A enterprise with an excessive amount of debt is, however, very vulnerable for liquidation in adverse conditions.
Cashflow. A lack of adequate cashflow is a probably fatal business risk. Cashflows should be managed diligently.
Growth. Enterprise growth requires additional working capital. Uncontrolled growth can lead to financial distress and even bankruptcy and must be avoided.
Abstract
Risk in business is a reality. When these risks are successfully managed the rewards may be substantial. If not, a business can run into serious problems and even collapse. It’s unnecessary (and silly) to disregard risks. By adhering to some primary ideas these risks might be reduced drastically.
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