Tips for Risk Assessment and Management

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Small businesses are prone to a lot of risks. From financial threats and market competition to unexpected issues like hazardous equipment, medical expenses, legal expenses, and security issues, a small business can be affected by any (or several) of these problems at any time. And as a small business owner, you must be properly equipped with risk management strategies to ensure minimal to no setbacks.

Before
achieving this, you need to first make assessments to your business model.

A
small business analysis is essential in giving you a fuller picture of all the
possible bottlenecks your business can face in the future. While risk
assessment is not 100 percent accurate when assessing the level of risk, it is
still an important step to initiate.

For risk
assessment, the very first steps are to:

1. Identify
the Risks in Your Business Model
: Identify what issues could
pose a risk to your business model. And, thereafter, consider the damages those
issues could have on your organization. Keep in mind that, depending on your
business type, location, and size, risks may vary.

2. Document: Once you’ve documented
your list of risks, begin the process of measuring the effects of each and determining
how hard they could hit your business. Tip:
Set up a scoring system, from mild to severe, to segment your list.

3. Monitor: Identify and appoint
employees who will keep an eye on monitoring your risks. But before that
monitoring takes place, you should define how risks should be reported and
handled. When you have procedures pre-defined for risk management, issues can
be solved very smoothly.

4. Review: Risk assessment is not a
one-time thing; it requires regular reviews. Review all your risk assessment
processes to see if all your steps are still relevant for potential upcoming
risks. Also, analyze new risks that might not have been relevant in the
previous assessment.

Managing the
Risks — Strategize to Implement

Managing
risks can be cost-effective, but this involves avoidance, reduction,
transformation, and acceptance.

Here are some
areas that require risk management:

  • Customer Sector
  • Producers and Suppliers
  • Staff Department
  • Information Technology Sector
  • Financial
  • Market Opportunities

If your business relies on a small number of customers, profit, and cash flow, then you should focus on locking in your major customers for the long-term, spreading out the risk by fragmenting into smaller customer groups, seeking new profitable customers, and even finding lower-cost ways of providing service.

If
the risks concern suppliers, production,
profits, and cash flow
, not dealing with possible supplier issues might
lead to business failure. So, make sure to lock in major suppliers through
long-term service contracts and seek alternative suppliers capable of supplying
similar items.

If the risks are due to a staffing problem, this is often because the employees see the business as a short-term employment option. For the sake of the long term, implement selection procedures that increase the probability of retaining employees. Find the right candidate, put in place a confidentiality agreement for trade policies, and finalize a robust performance development system for setting the criteria. Also, provide ongoing training for creating performance standards, allocate other people to fulfill key tasks, and review each employee’s notice period, allocating them according to your investments in them.

If the risks are related to information technology, this could be either system failures or security issues. So, protect your laptops, desktop computers, and hardware from internal and external threats. Keep data safe by installing antivirus and cloud services, and if you’re an agency that deals with different IPs, it is important that you install safe and secure VPNs. Next, secure the line of business applications, ensure uninterrupted power supply, and conduct appropriate IT training.

If the risks are financial, this might also include falling into debt. So, manage cash flow on a daily, weekly, or monthly basis. Forecast cash flow to identify any occasions when it may not be stable. Establish a committed line of credit from a financial institution. Maintain a strong relationship with financial institutions to ensure that they understand the business in times of crunch, and monitor market conditions to analyze seasonal fluctuations.

If risks are due to loose market opportunities, this is when a business is secure from market crunch but might face customer visibility crunch. So, research and analyze consumer trends and tastes in order to respond to change. Test the marketplace to see what products and services are in demand, promote products or services to sell better, and promote more profitable stocks or services.

Some Other Risks That Businesses Can Possess

Internal Controls: It is essential to track
and control your business internally to manage your assets. The control depends
on the business goods and the funds, industry type, and potential challenges.

Sales: Define the procedure to deliver
goods, the purchase history of the customers, and the process for handling cash
flow, checks, and credit sales.  

Purchasing: Keep an eye on the
procedure that ensures the purchases are in line, the suppliers’ details are in
check, and the order history and deliverables information are recorded.     

Accounts Payable: Create a system to ensure
that payments are not duplicated or made to an unidentified supplier. Create procedures
to make sure that the payments are carried out on agreed-upon terms.

Payments: Check that invoices are
approved by the appropriate authority. Create a list of who is authorized to
make payments and procedures that define the duties of the bank and bank
reconciliation separately.

Personal Accidents and Illness: This mitigation is vital for
self-employed business operators who are not covered by workers’ compensation
insurance.

One of the main reasons that businesses fail is that they forget to assess their models continuously, or they do not review their risk management strategies to ensure they remain up to date. Along with risk assessment and management, the right insurance policies can save a business from a lot of general liabilities.

Ensure you take all the assessment steps and create risk management policies according to potential business holdups and bottlenecks. And, with it, insure certain aspects of your business, such as property, injury, medical expenses, legal expenses, and more for greater security.

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